Blogging the AGDC: What Are the Biggest Online Gaming Opportunities?

A more appropriate title might have been "Online Game Luminaries Argue Over Subscriptions vs Microtransactions and AAA Games vs UGC and Virtual Worlds." That's a bit lengthy, though. John Blakely (VP of Sony Online Entertainment), Mark Jacobs (VP EA, Studio GM EA Mythic), Raph Koster (President Areae), and Erik Bethke (CEO GoPets) duked it out under moderator Matt Firor's supervision. I missed some discussion about console-based MMOs, and sat down just as Mark Jacobs was heatedly making an argument against RMT. Read on for the rest.

Bethke: I really appreciate your honesty, but the reason you don’t like micro-transactions are personal, not based on reality. Whatever you write in the EULA is your best wish of what’s going to happen. We have four or 500 years of English common law detailing how transactions work.

Jacobs: Reality is lawyers. There’s nothing decided yet about how virtual property is protected by the courts.

Koster: We have to make the distinction between micro-transactions, which means spending a little money, and the ownership of virtual property. You can sell stuff like putting a badge on your profile that really does jack shit. There’s nothing to sue over. Daniel James has a thing he likes to say about how if you’re charging a subscription, you’re overcharging half your users and undercharging the other. The price point is wrong. When you look at the ARPU of the microtransaction service, the free tail starts to line up with the double boxers. It’s just a business model. And one thing history has taught us is that betting the farm on a business model is always a bad idea when you can look at consumer needs.

Firor: So is the market there?

Bethke: The market isn’t there yet because the US is transitioning from a subscription service. The market is clearly there because the consumer wants to pay for however much of the game they want.

Jacobs: Where’s the evidence that shows consumers want this? I’m not saying you can’t make money off it. You’d have to be an idiot to look at these games and say you can’t make money off it. But the argument that we have to go that way and that consumers want it? I don’t buy it. The answer is to have a lot of games and types.

Bethke: There are all sorts of users out there. You have super users that build guilds and add value to your game. You’d pay them to retain them. What’s common to all users in the space is that they’re transacting with each other. You can work with that and lay another model on top.

Koster: As far as evidence goes, let’s drop Asia. Just look at North American and Europe. Out of the top ten MMOs, WoW is probably the only subscription model. And in Europe, Habbo is dominating WoW.

Bethke: If there’s no secondary demand for the items in your game\, you probably don’t have a good game.

Jacobs: These top ten MMOs, Raph, because I have no idea what you’re talking about. Can you name them and their revenue?

Koster: Who was at the Habbo keynote? I find it embarrassing that it was half empty. You wouldn’t have to ask the question. They have 7.5MM people. They haven’t begun to monetize. You look at Barbie, Penguin, Habbo. They all have millions of users.

Jacobs: What are they making?

Koster: Penguin just got acquired with 40% growth a year. And now it’s Disney. Who knows what’s going to happen once you get Penguin plushies.

Firor: There are definitely different models that work well for different groups. There are markets who don’t want to pay the microtransactions and just want flat rates.

Bethke: I think subscriptions are just wrong. The Gap store doesn’t have a $9.99 membership fee.

John Blakely: Costco does. Is it right or wrong how you buy gas or TV? MMO are rising up out of a niche.

Bethke: The reason I’m so frustrated is that everyone in the West is asking if RMT works. It does. We just need to figure out how to do it better than asia.

Jacobs: I disagree. I think it’s bad for the players. And anyone who says there is only one model, is wrong. Erik, if you say that this is the only way, you’re doing the same thing you say I’m doing.

Koster: Truce. Truce. The topic of the panel is opportunities. I’ll agree. I just said locking into a business model is a bad plan. If we’re looking at opportunities, the revenue opportunities probably do not lie in subscription.

Firor: A lot of people are doing subscription.

Koster: And the ROI is tiny.

Bethke: The advantage of microtransactions are that you can layer back on subscriptions. It’s a fundamentally lower level of model.

Firor: That’s the next topic, of real-money transactions. I think at some point a game is going to be huge that RMT is the basis of interaction. Will that open the floodgates?

Jacobs: No. Yes there will be a game that will involve RMT. Yes it’s coming. God only knows when. No it’s not going to open the floodgates. People will try to make money off it. And like most MMos it will fail.

Blakely: What about card games? Legends of Norrath. The opportunity is to not focus, look broad. Engage your consumers in a meaningful way.

Koster: Let’s just predict the present. RMT works fine.

Bethke: RMT is not a model. It’s a point for 1000s of possible model. In KartRIder if you want to switch between your primary and secondary model, you can. It’s 1 penny each time. That’s not an appearance thing. It’s a UI. You can put 4 cents in if you want. This is what’s good about the West. WE have these conferences and papers. What we really need are robust discussions about how to make this successful. They don’t do that. Nexon has a ton of metrics. They just keep them secret.

Firor: Let me redefine RMT. I was thinking more about players selling items for money.

KOster: SOE launched that.

Blakely: It’s a play style.

Firor: So why haven’t people jumped on it? The hardcore MMO base has been railing against it for years.

Koster: And quietly doing it for years.

Firor: Is this an example of the hardcore player base holding back a feature that we really need?

Koster: You’ve got to be hardcore to pay $1000 for anything on eBay. Those are hardcore players.

Firor: And those are the same people who post on message boards saying that developer-supported RMT is evil.

Koster: And we all know how useful it is to guage reaction by message boards.

Blakely: There are lots of places out there like Second Life where people are making transactions and doing business. Any time you put people together, there will be transactions.

Firor: I think it’s safe to say that for any Western MMO there’s a spreadsheet tracking that.

Blakely: We’re here for value. It’s all about adding value.

Koster: How does EA feel about the Sims object ecology? You look at what’s been built up around people selling items on sites. That is exactly the same thing in economic terms of people selling a weapon. Why is it good for the goose and not the gander?

Jacobs: It is good for the sims. You can make whatever choice you want. My choice with Warhammer and Camelot, when we started, was to use a subscription, take a stand against IGE, and not get involved with transactions between players. We know it happens, but we’re not taking a cut of it. I can’t speak for Nancy Smith, but I’d say different models, different consumers.

Firor: I have to ask the obligatory Web 2.0 question. I know this is aimed almost directly at Raph because he has the business doing it. FLickr and YouTUbe wouldn’t exist without people giving them content. When is the game model going to evolve that allows that? Is that a game?

Koster: This has been a weird conference, like two conferences going on without talking to each other. It’s like having a family that hates each other. It used to be the coolest thing about games in the 80s. And we lost it. A team of one with a Ziploc baggie? Richard Garriott was user-created content. We are users. We can’t get snobby. It’s just the technical sophistication for creating good games is too high. Who likes playing mods? Played a good one lately? It’s too hard even to make a texture.

You look at a Pew Internet report, and they’ll tell you that 50% of Americans are creating content on the Web. That’s not even counting things like giving someone a star on eBay or leaving a comment. When you include that, 100% are creating content. Look at Facebook. It has levels, it has points, it has reputation systems, and kabillions of users.

Bethke: I agree with your comment about two different parallel conferences going on together. And I hate the distinction between virtual worlds and games. Too many people think you just give people a platform. A great virtual world will have a game component that people can understand and lash on to. A great game will have an economic existence that people can flesh out.

Firor: Why do you think it’s bad for a game like WoW or Warhammer that don’t have UGC and are successful?

Bethke: Why can’t they be more successful.

Blakely: WE can both be rights. The value lessons I’ve learned in the past are to look for valuable experiences. The reason these models are valuable is that they’re fun.

Koster: You mention polish and quality, and that’s important for seed quality. But we need to throw some words out there like empowerment. Those thigns matter. The huge place where UGC thrives in closed worlds are fansites.

Blakely: You look at Star Wars Storytellers. WE allowed the players as a part of their subscription fee to have their own action doll.

Koster: Look at the Star Wars music system. There’s a company called Studiocom that did Coke Music. It’s nothing but Star Wars music system.

Bethke: I think WoW would be better if I could buy a boat and live in it. It’s done a lot of thigns right. I think Blizzard should sell gold. I would buy it.

Firor: Moving on, another console question, a little more general than the last one, I think I know what the answer will be. Right now, on Xbox Live if you want to play a casual game, everyone just downloads it from Live. A lot of that game exists on Shockwave on the Web. Is Xbox stealing their thunder? Mark?

Jacobs: Actually I don’t know much about Shockwave games on the Web. I think Xbox Live is one of the most successful stories in the game industry. If you look at what they’ve done and what people said when Microsoft launched. It’s two worlds.

Koster: Fortunately, Msoft lets you see this data. You can just go to your preferred Live Arcade game and scroll to the rankings. Live Arcade is not that big. The numbers are out there. The issue is that on the Web, there’s such a noise level of totally kickass product, that stuff gets lost. That’s one of the benefits of having a proprietary music player. You can make people listen to your music better. I think Live is great for Microsoft. I think it would be better if the Developers Club was free. And everyone has played all the casual games.

Blakely: we’re getting back to the right and wrong thing. There are tons of good games out there, and people can play them.

Firor: So is the Xbox stealing the PC’s  thunder for shooters and racing?

Koster: Does PC retail have any thunder left? WE’ve all seen the numbers.

Jacobs: Here we go again…

Koster: Let me preempt you. PC gaming is the hottest growing market. PC retail, as a segement of the market, I agree.

Jacobs: Thanks, Raph. The only thing I’d add is that if you’ve been in the industry as long as I have, you’ve heard the argument before. Every time a new console comes out, the PC is dead. Lo and behold, the PC is still around. This quarter, if you look at all the games that look totally kickass coming out, people will be surprised. Raph what you said is absolutely correct--Or what I would have said is absolutely correct--but the analysts will see new life.

And the day the consoles are so like the PC where you can work from them, that’s the day the PC gaming is dead.

Bethke: But that’s the day they become PCs. It’s just semantics.

Koster: It’s branding.

Firor: All the games Raph has been talking about, Habbo, Penguin, etc., skew younger. But all these players are getting older. Are we poisoning the gene pool for more hardcore MMOs?

Bethke: I have two competing things in my head. I think Damian did a good thing yesterday. He puts casual and hardcore on the same line. He says that as players put more time in the world, they become hardcore.

Firor: Let me rephrase, I mean AAA, large games.

Bethke: I think the future is large games with RMT skeletons and sponsors. IT’s going to be confusing. My 5-year-old son is level 53 in WoW. He doesn’t play the Wii. There are options.

Koster: I always have culture shock when I go spend time with one divorced parent. When I’m with the Web guys, I realize they’re just not doing anything fun. As far as poisoning the gene pool goes, we have a skewed perception because games have been evolving while we’re around. We think whatever we have now is better. Arguably, Arkanoid was not improved by bump mapping. My kids play Pong, Pokemon, Halo. There’s no difference. From their perspective, Pong was adequate for its purpose. If anything, we’re missing it.

Jacobs: I don’t think you can poison the well. I think if people start with RUnescape or Habbo, any game, that presents them the opportunity to move to other games. As to what Erik says about the future of virtual worlds, nonsense.

Bethke: Wanna bet?

Jacobs: How much?

Bethke: A hockey team?  I don’t know, I’m not as rich as you.

Jacobs: Are you sure? You’ll have both options. As people are spending so much time being given tools that are too powerful for them, as they get tired of flying penises, what’s going to happen.

Koster: Red Herring

Blakely: What is right is to make something fun. What is right is to entertain the player. Pick choices for the player to let them interact and have fun.

Q: You brought up subscription-based and microtransactions. I’m partial to microtranscations for a couple of reasons. It depends on life cycle. But if you look at life cycle and you look at the newspaper, it’s subscription.

Bethke: Or microtransactions if you buy advertising.
Q:Right, and microtransactions outweigh all the time.

Jacobs: Not online. If you look at in game advertsing. The projections haven’t been met.

Q: And advergaming wasn’t even a word a few years ago.

Jacobs: Actually it was. They were quoting advertised based gaming in the 90s. And it failed miserably.

Q: MY question is isn’t the issue of price point, something people are thinking about for subscriptions, shouldn’t there be a family plan so my wife doesn’t have to pay to play along?

Blakely: We’re doing different models to look at value. I think the opportunity that everyone should take away is that you do what works for the user.

Bethke: That’s just another problem with subscriptions. They’re one big chunky tool. If you relax andl et your wife buy however much you need, it works.

Jacobs: If you go to a baseball game, should you go to the team and say “you should let my wife in for free. Otherwise she can’t come in for free. Isn’t that evil?”

Q: Erik, You play WoW. How do you see it decayed by RMT that gets in the way of legitmate players playing the game.

Bethke: You posit that there’s decay. There are spammers. And that’s evil. But I don’t think those bits of evil give you proof that RMT is causing decay.

Jacobs: Now wait a second. The bottom line is that when you have gold spammers, gold sellers, gold farmers, they can interfere and do very often with your enjoyment. How many people here play WoW? Good number. How many people have tried to get a quest and run into individuals working, not playing? How many of you enjoy that? [none]

Bethke: How many of you have run into farmers or spammers? How many there feel that’s enough  to invalidate RMT. You want no form of RMT. You want it regulated and clean. Families can’t trade value.

Koster: If you officialize it, you cut part of the problem of spammers. It’s a design problem. So design around it.

Q: Part of the industry wants to move to microtransactions. My fear as a customer and creative is that it feels like it could drive the game in one direction. I don’t want to pay $3 for a temporary tattoo that will fade. And I don’t want to design those. Do you have those tensions?

Koster: Yes, but it’s a similar tension when you make anything to sell. I’ve bought temporary tattoos for my daughter. And it was stupid. But I did it. I’m sure the people who came up with temporary tattoos agonized over whether it was fair to charge $.99 for some ink that would wash off. What we see is clumsy RMT. There’s a balancing point, and your customers will tell you where it is.

Bethke: And it can be very gradual. It’s not one customer buying it and changing the game.

Q: I’ve heard surprisingly little here about WEbkinz and BarbieGirls. What we have is games with crappy merchandising with little connection and merchandise with crappy games with little connection.

Koster: Get used to it. There will be an MMO based on a breakfast cereal in a few years. Webkinz was one of the hottest toys of Christmas. It’s genius. It’s a beanie baby with a toe tag and an account number. Get used to it. And get used to the idea that they will be the most powerful games in the world. They have all the leverage.

Q: My point is that it’s time to look for games that are intended to be merchandised from the beginning.

Q: With all the games coming out with UGC, how does that change our goals as developers?

Jacobs: It doesn’t. Most UGC is junk. There will be companies like Raph’s that will do a great job, and I know it will because it’s Raph. Remember that game done by a really good company that would be a fantasy MMO and you could create any MMO you wanted, and people were saying Camelot was never going to launch. What happened with that? The companies that do tools will. The companies that don’t, won’t.

Comments

[Raph]

Thanks for the transcript! FYI, it was John Blakely there from SOE, not John Smedley (who had to cancel).

[Joey Seiler]

Thanks, Raph, for the correction and the talk. I'll update that now.

[jordan]

can i buy 1 mil for $3