Why do MMOs fail? Its the business model stupid.
Business plan is every bit important as the game itself. In fact, the business plan is more important because it means the difference between success of your title, company, and future and failure.
Game fans are notoriously narrow sighted, they see what affects them period, rarely if ever considering the context in which things happen. They don't know about nor do they care about the business that actually produces the titles they get so frothy over. They think that if you just have a great idea and produce it they will succeed. People who believe this are fooling themselves.
Take the imminent fall of Tabula Rasa, angry gamers are blaming NCSoft for killing TR, even Brent from VirginWorlds.com is holding NCSoft in contempt for this action, first lamenting the shutdown of Auto Assault, and now TR. As if the two titles could be compared; virtually the only similarity between them is that you had to play them on a computer. When Auto Assault launched the popularity of driving games on the PC was at an incredible low, the marketing and press surrounding the game never made its case to the community, I don't think NCSoft actually had a clear idea of what they wanted to do with the product or with NetDevil, they had a game beautifully suited to a niche market but failed to cultivate that (yes you do actually have to sell products you make, "build it and they will come" only works in the movies). Tabula Rasa also a niche title was positioned to compete in the mass market arena, something that a quasi-fps, PVE only game is completely unsuited for.
What people seem to be missing is blatantly obvious to anyone who has been watching the markets lately.
Times are tough, share prices are down, sales are down, the economy is slowing. Q3 reports for nearly every game manufacture were dismal and there is nothing to suggest that Q4 will be any better.
What happens in lean times at a corporate level?
Every facet of an organization comes under scrutiny, anything not performing or under performing is under extreme risk of being cut.
Games are a business, a particularly cut throat business, one whose produce has a very short shelf time and looses value extremely quickly (bargain bin), a business where the customer holds an expectation of continual qualitative and visual advancement.
The games business like most computer software is necessarily dragged along by the ruthless progression dictated by Moore's Law. For productivity software Moore's Law means that companies can take advantage increases in processor power and let their code bloat to encompass more features, bloat is OK as long as features advance and the software is stable. Just look at the install sizes of the Windows product over the years, I think I still have my floppies of Windows 3.1.
Games on the other hand, have traditionally made use of the advances allowed by Moore's Law to do cooler things, better textures, physics engines, designs that allow more CPU cycles for AI, multi player features, and so on.
What this has meant for games and MMOs in particular is a steadily increasing cost in development, every new possibility translates into an extra cost in development because of the unsustainable business model that the games industry is currently operating under.
The total cost of development dictates the business model that the game must operate under.
If a game has a relatively low development cost it can adopt a slow growth business model and concentrate a portion of profits on reinvestment into the core product. This model fits niche games particularity well.
If a game has a relatively high development cost it must adopt a rapid growth business model and concentrate on maximizing sales to recoup costs as rapidly as possible. This is because games have a very finite lifespan, and that lifespan requires constant maintenance. If you must recoup a $100M development investment AND provide a decent dividend AND increase share value AND have enough cash for investment into the product to keep it up to date, it means that you must have a steadily increasing subscription base over the products life cycle or at the very least a stable one.
So let me reiterate that again. The total cost of development dictates the business model that the game must operate under. This is true for both privately held corporations and publicly held corporations although a privately held corporation just has to keep itself pleased with its performance while the publicly held company is beholden to the market.
Tabula Rasa cost a lot to make, estimates have it at a bit over $100M with a pale launch take of a bit over $5M, if you assume that TR could continue to pull in $5M per month it would still take 20 months just about 2 years just to cover development costs. To attain that level of net income would require a subscription base of just about 350,000 players for the whole time. Note this hypothetical income does NOT include support staff salaries, infrastructure costs, bandwidth, new development, system supervision, marketing, or most importantly, profit. All told for TR to even be moderately profitable it would have had to have maintained considerably more than 350,000 players.
How many mainstream MMOs in MMO history have maintained that kind of subscription base for that kind of time? Not many (World of Warcraft, Everquest, and Final Fantasy XI).
Warhammer Online has the exact same problem, Dark Age of Camelot was a success because the initial project was made in 18 months using open source tools and internal engine, they recouped their costs and were profitable. Warhammer Online cost orders of magnitude more to make, cannibalizes current subscription base, and has the exact same market appeal as DAoC, and yet...they somehow expected it to surpass DAoC? Why? The numbers don't support that belief, the IP is strong but very niched, and a RVR centric game is automatically niched. I doubt that Warhammer Online will be as successful as DAoC was.
Age of Conan, this is a game that is also forced into a business plan by its costs that the game is simply not suited to. Mere months after launch they have seen a lead producer change a rapid rise and fall of subscriber base, and as announced recently imminent server consolidations. AoC still reportedly has about half of its initial 800k subscribers. Right game, wrong business model.
And Vanguard, do I even need to mention it? The only reason it lives on now is because Sony Online picked it up cheap and did not have to bear the costs of development, SOE is running the game on a very tight budget. Basic bug fixes, implementing previously planned unfinished content, and not even talking about an expansion. If Vanguard is profitable it is only just. I imagine they can count Sony Access accounts as VG accounts for accounting purposes.
So, a good game that increases its value over time, hit its market spot on, and has an obviously profitable business plan? Eve-online is one. This game is a gem of a product, I don't particularly like the game but is serves as an example of what is possible and how it should be done.
If you have a niche game you must make sure that your costs and business plan are appropriate for a niche market.
If you have a mass market game you must make sure that you features actually appeal to the mass market. If they don't your product will fail or under perform, which might be enough in boom times where your other successful products can "carry" the under performer. In hard times, like now, an under performer with no chance of recouping costs calls for the axe, in this case Tabula Rasa.
Games are not a physical commodities, they are perishable goods, created for a particular time frame of a particular set of hardware, constant development to keep them fresh is a requirement, one that is dependent on a positive cash flow.
-Gooney
Game fans are notoriously narrow sighted, they see what affects them period, rarely if ever considering the context in which things happen. They don't know about nor do they care about the business that actually produces the titles they get so frothy over. They think that if you just have a great idea and produce it they will succeed. People who believe this are fooling themselves.
Take the imminent fall of Tabula Rasa, angry gamers are blaming NCSoft for killing TR, even Brent from VirginWorlds.com is holding NCSoft in contempt for this action, first lamenting the shutdown of Auto Assault, and now TR. As if the two titles could be compared; virtually the only similarity between them is that you had to play them on a computer. When Auto Assault launched the popularity of driving games on the PC was at an incredible low, the marketing and press surrounding the game never made its case to the community, I don't think NCSoft actually had a clear idea of what they wanted to do with the product or with NetDevil, they had a game beautifully suited to a niche market but failed to cultivate that (yes you do actually have to sell products you make, "build it and they will come" only works in the movies). Tabula Rasa also a niche title was positioned to compete in the mass market arena, something that a quasi-fps, PVE only game is completely unsuited for.
What people seem to be missing is blatantly obvious to anyone who has been watching the markets lately.
Times are tough, share prices are down, sales are down, the economy is slowing. Q3 reports for nearly every game manufacture were dismal and there is nothing to suggest that Q4 will be any better.
What happens in lean times at a corporate level?
Every facet of an organization comes under scrutiny, anything not performing or under performing is under extreme risk of being cut.
Games are a business, a particularly cut throat business, one whose produce has a very short shelf time and looses value extremely quickly (bargain bin), a business where the customer holds an expectation of continual qualitative and visual advancement.
The games business like most computer software is necessarily dragged along by the ruthless progression dictated by Moore's Law. For productivity software Moore's Law means that companies can take advantage increases in processor power and let their code bloat to encompass more features, bloat is OK as long as features advance and the software is stable. Just look at the install sizes of the Windows product over the years, I think I still have my floppies of Windows 3.1.
Games on the other hand, have traditionally made use of the advances allowed by Moore's Law to do cooler things, better textures, physics engines, designs that allow more CPU cycles for AI, multi player features, and so on.
What this has meant for games and MMOs in particular is a steadily increasing cost in development, every new possibility translates into an extra cost in development because of the unsustainable business model that the games industry is currently operating under.
The total cost of development dictates the business model that the game must operate under.
If a game has a relatively low development cost it can adopt a slow growth business model and concentrate a portion of profits on reinvestment into the core product. This model fits niche games particularity well.
If a game has a relatively high development cost it must adopt a rapid growth business model and concentrate on maximizing sales to recoup costs as rapidly as possible. This is because games have a very finite lifespan, and that lifespan requires constant maintenance. If you must recoup a $100M development investment AND provide a decent dividend AND increase share value AND have enough cash for investment into the product to keep it up to date, it means that you must have a steadily increasing subscription base over the products life cycle or at the very least a stable one.
So let me reiterate that again. The total cost of development dictates the business model that the game must operate under. This is true for both privately held corporations and publicly held corporations although a privately held corporation just has to keep itself pleased with its performance while the publicly held company is beholden to the market.
Tabula Rasa cost a lot to make, estimates have it at a bit over $100M with a pale launch take of a bit over $5M, if you assume that TR could continue to pull in $5M per month it would still take 20 months just about 2 years just to cover development costs. To attain that level of net income would require a subscription base of just about 350,000 players for the whole time. Note this hypothetical income does NOT include support staff salaries, infrastructure costs, bandwidth, new development, system supervision, marketing, or most importantly, profit. All told for TR to even be moderately profitable it would have had to have maintained considerably more than 350,000 players.
How many mainstream MMOs in MMO history have maintained that kind of subscription base for that kind of time? Not many (World of Warcraft, Everquest, and Final Fantasy XI).
Warhammer Online has the exact same problem, Dark Age of Camelot was a success because the initial project was made in 18 months using open source tools and internal engine, they recouped their costs and were profitable. Warhammer Online cost orders of magnitude more to make, cannibalizes current subscription base, and has the exact same market appeal as DAoC, and yet...they somehow expected it to surpass DAoC? Why? The numbers don't support that belief, the IP is strong but very niched, and a RVR centric game is automatically niched. I doubt that Warhammer Online will be as successful as DAoC was.
Age of Conan, this is a game that is also forced into a business plan by its costs that the game is simply not suited to. Mere months after launch they have seen a lead producer change a rapid rise and fall of subscriber base, and as announced recently imminent server consolidations. AoC still reportedly has about half of its initial 800k subscribers. Right game, wrong business model.
And Vanguard, do I even need to mention it? The only reason it lives on now is because Sony Online picked it up cheap and did not have to bear the costs of development, SOE is running the game on a very tight budget. Basic bug fixes, implementing previously planned unfinished content, and not even talking about an expansion. If Vanguard is profitable it is only just. I imagine they can count Sony Access accounts as VG accounts for accounting purposes.
So, a good game that increases its value over time, hit its market spot on, and has an obviously profitable business plan? Eve-online is one. This game is a gem of a product, I don't particularly like the game but is serves as an example of what is possible and how it should be done.
If you have a niche game you must make sure that your costs and business plan are appropriate for a niche market.
If you have a mass market game you must make sure that you features actually appeal to the mass market. If they don't your product will fail or under perform, which might be enough in boom times where your other successful products can "carry" the under performer. In hard times, like now, an under performer with no chance of recouping costs calls for the axe, in this case Tabula Rasa.
Games are not a physical commodities, they are perishable goods, created for a particular time frame of a particular set of hardware, constant development to keep them fresh is a requirement, one that is dependent on a positive cash flow.
-Gooney
37 Comments
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Comment by Gooney on December 3, 2008 at 5:22am -
Given western culture and purchase practices related to credit card use I'm not convinced that micro-transactions can really work in the west. I could be wrong about that though, I've not yet seen a model for micro-transactions that I'd personally be comfortable with.
-Gooney
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Comment by Googleman81 on December 3, 2008 at 5:37am - -Googleman81
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Comment by Gooney on December 3, 2008 at 5:52am
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CindyL: I have no doubt that some gamers are very interested in the games and companies that make them, but they are a vanishingly small number of the over all player base. Most gamers are not passionate about the games they play, observe the re-sale console game market. MMOs are special cases in many respects, but most players after their first gateway game hop fairly rapidly through different titles.
You mentioned Ryzom, how many times has that title gone bankrupt? No doubts that some folks love that game but I think its safe to say that as a business venture its been pretty much a failure. Still it is an incredibly interesting case and pretty unique.
Resurrecting failed titles works as long as the resurrecting entity has a business model that can sustain their costs, if it can't the game dies.
The market forces that are convincing NCSoft to close TR have been going on for quite some time, this all started last fall.
My point is that someone inside the organization making the game must evaluate it objectively and continuously during the development cycle to make sure that it will be a success in the market segment it is attempting to serve. My point with respect to TR and the other games I mentioned is that they have failed to provide what their market segment required, and in failing that the titles themselves fail.
So with respect to TR.
1. High development costs forced them into pursuing a business model for rapid growth over an extended period of time.
2. This was an unrealistic proposal given the content in the game, the saturation of the market, and what the consumer base expected.
3. Current global economic realities are forcing companies to remove under performers from their product portfolios.
4. TR is one such product in NCSoft's product portfolio.
No were in this blog post am I advocating one subscription method over another, rather the over all profitability of the venture. I personally do not see micro-transactions becoming popular in the west, I could be wrong about this. I do think that the traditional subscription model will change, how it will change I am less sure about.
What happened to NCSoft with regards to TR and their cooperation with the Garriot brothers I'm sure would make a rather amusing book, something along the lines of "Don't Look now, but I'm fleecing your Company...oh and here's your game". I doubt that NCSoft will partner themselves with any more Legendary Enthusiasts like Garriot again.
@Laird: TR could probably be an MTS MMO in the west, but the fundamental problem that NCSoft has is that its a failed product, so I imagine they will write it off to get it off of their books, I'm not sure about how Korean tax law is structured but I'm reasonably sure that if they do that the game must disappear. The only way that TR could live on is if they sold it to a 3rd party and just ate the development costs, something I doubt they want to do.
-Gooney
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Comment by Gooney on December 3, 2008 at 6:21am
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Hmm, I think the current initiatives of both Sony and Funcom would tend to dispute that, I believe both have plans to build console based MMOs, indeed, Sony already has. Additionally, I think an argument could be made that Little Big Planet is indeed an MMO.
As I stated earlier, I have no doubts that some people are passionate about their MMOs, but they are but a fraction of the whole, and necessarily so, MMOs require a good deal of player turnover to be successful.
-Gooney
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Comment by Gooney on December 3, 2008 at 6:57am
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No, my point was that MMOs are no longer system specific.
When I mention turnover I mean is average subscription time, every game has some people who come and stay, but those are pretty rare. Lots of people play a while then split when a new game comes, thats why constant marketing, free trial periods, and other incitement initiatives are important.
For a healthy MMO, one that grows you will have a steady stream of people coming and going, hopefully more coming than going but there will be turnover. A lot of players play games, leave then come back after a new expansion.
The MMO is a very special sort of endeavor, it has more in common with a service than just a game. This is why the business plan has to be right, and in every single instance of a failed MMO you can look back and see that they had a bad plan or no plan or were positioning themselves incorrectly.
-Gooney
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Comment by Gooney on December 3, 2008 at 7:40am
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Why the hostility Laird?
What point are you making exactly? All I said is that MMOs are no longer system specific, WoW for instance runs on both MAC and PC, in on the same servers.
It is well publicized that AoC was being worked on for XBOX360.
Which to me indicates that MMOs in general are no longer system specific, meaning that because consoles are so powerful now that they are becoming viable MMO platforms.
Do you dispute this?
You can attack my conclusions, thats fine, but you better back them up. I'm not in the practice of just making shit up, if there is something you believe I got wrong or if you have better info then put it up mate.
-Gooney
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Comment by Gooney on December 3, 2008 at 7:59am
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Laird, believe it or not I do value your input. I welcome your or anyones post as long as they contribute to the discussion.
I tend to be thorough, if I make an assertion I can back it up. Facts are facts, interpretation of facts is whats interesting. I am just as likely to be wrong as anyone in an assumption.
Cheers mate,
-Gooney
-Gooney
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Comment by Laird HexDSL on December 3, 2008 at 8:01am - laird hex would like to withdraw all comments and has nothing to say on this matter
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Comment by SquirrelsOfWar on December 3, 2008 at 8:16am - A game must warrant the price being charged for it. Those that don't, shut down. It really is that simple. It's just like any other industry.
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© 2009 Created by Gary Gannon
A public company has to report earnings, so if you really want to you can go through their quarterly reports. I haven't seen the figure mentioned in Tobolds post disputed anywhere, and since that was derived from a Korean finance source I'd consider it pretty solid.
Public companies are in principal very transparent, they have to be or their stock won't be worth anything.
-Gooney