In an interesting news item it was revealed that outside investors had risked $184 million inÂ virtual worldsÂ in the first quarter of this year and $161 million in the secondÂ quarter of this year. Giving an annualised rate of over $600 million dollars a year. This is actually understated considerably as many deals are not visible. Also remember that this is just what outside investors are putting in. The industry itself is also investing heavily in this area so the total spend onÂ virtual worldsÂ development is massive. But much of this spend will be money thrown away.
Virtual worlds have two features that make so many people want to risk so much money. I have seen this myself having been involved with The Realm, anÂ old school 2D MMO and with Dragon Empires, one of many abortive attempts to get a slice of the MMO pie.
The first feature is that virtual worlds can be a license to print money. Not just a bit of money, not even lots of money. We are talking about immense amounts of money. World of Warcraft, the monster that dominates the marketplace, generates several million dollars of revenue every day. Human greed means that there are a lot of people who would like a slice of this. For many even a small slice would do.
The second feature of virtual worlds is that they can do a lot of things that could not have been done before and which cannot be done any other way. The potentials are infinite and massive. An example is the virtual world of Baghdad that all US personnel “play” before being sent there. This doesn’t just teach the physical layout of the place, it also teaches the reactions and behaviour of the local populace and the threats and problems that will be encountered in the real world. Having played this personnel arrive on the ground already up to speed and more able to do a good job from day one. You can extrapolate this idea to an infinite nuber of areas of human activity.
So we have this seductive combination of infinite possibilities and huge revenue potential. No wonder so many people are risking so much money.
But there are a problems. When you write a conventional game the development staff hand over the gold master and go to the pub. Job done. WithÂ virtual worldsÂ creating the initial product is just the beginning. It needs constant tweaking, updating and expansion.
OneÂ reason for this is “churn”. If there is a competing product or products, and there always is with public products, you will constantly lose customers to it. So you have to constantly give your customers more and better things just to minimise customer loss. The same applies to marketing. This needs to be constant just to replace the customers who have been lost. So for development and marketing an MMO is a never ending treadmill.
Then there are the technical problems. Part of the virtual world lives on a massive server and part (sometimes very little) lives on the user’s computer. These two parts have to work together. Then the server has to run a consistent playing environment to hundreds or even thousands of people at the same time. And all this has to be scalable to many different servers around the world. This is technically and managerially very demanding.Â Which is partially why most virtual world development hugely over-runs on both development time and budget. And why so many are launched on the public in an unfinished state.
With virtual worlds MMORPGs are the most seductive for investors because they appeal to the greed impetus most. However non MMORPG virtual worlds can make a good investment if you are a monopoly supplier to a corporation or the military. There is no doubt that virtual worlds will play an everÂ increasing role in many facets of our daily lives.
In the real world many MMORPGs are still born, canned oftenÂ after many millions of investment. Those MMORPGs that do see the light of day often never make a profit. These are the realities of this sector.
So virtual world investment is only for the very brave. Even proven experts with a track record have failed (Ultima Online, Asheron’s Call, Anarchy Online, Earth and Beyond, The Sims Online and so many more). And the numbers involved in failed virtual worlds each year are almost impressive as the revenue figures for the few that actually work commercially. Far more projects fail than succeed.
Eh. The numbers aren’t as bad as they look and in some cases the losses attributed to one project are in the fact the losses incurred in another. Many MMOs in recent years were canned not because they weren’t printing money, but because they weren’t printing money fast enough for the people involved.
Doesn’t change the fact that they were still cancelled of course — I’m just pointing out that a big part of the risk involved in the MMO space is the immaturity of the market and the business itself. It’s not for the faint of heart, but many investors and publishers (EA, I’m thinking of you) seem to forget that.
That being said – more MMOs achieve some level of success than don’t these days. MMOs have come a long way from the Realms and that has a lot to do with the money pouring into the space, right now. More importantly, the developers who are players in the space now are a lot more mature than they were. No more wacky schemes for games no one will play… well, *almost* no more wacky schemes, at any rate. 😉
MMOs are taking over PC gaming at this point and they may single handedly save PC gaming… but I wonder if there won’t be some sort of “MMO bubble” bursting before that happens…
Ultima Online, Asheronâ€™s Call, and Anarchy Online haven’t failed… they’re all still making a profit today.
Ultima Online has collapsed from quarter of a million subscribers to around 20,000 outside Japan and 50,000 there so is probably still profitable but not going anywhere.
Does Anarchy Online even have 10,000 now? And Asheron’s Call a little over this.
In a market where there are quite a few games with subscriptions in the millions I would count these as failiures.
I think anything that covered its losses and is still making money should be counted as a success.
It’s not all about making an absolute WoW-like fortune, which is a stupid target to aim for… but having a steady income, happy customers and therefore happy staff are pretty important.
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