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Bringing the Item-Based Model to the Western Market. Please download slides from: Daniel James, CEO | [email protected] | Three Rings Background. Daniel: MUDs since 1982 Three Rings founded 2001 Puzzle Pirates first US Casual MMO

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bringing the item based model to the western market
Bringing the Item-Based Model to the Western Market

Please download slides from:

Daniel James, CEO | [email protected] |

three rings background
Three Rings Background
  • Daniel: MUDs since 1982
  • Three Rings founded 2001
  • Puzzle Pirates first US Casual MMO
    • Subscription launched 2003
    • ‘Doubloons’ pay-for-item model Feb 2005
  • Privately funded
    • Founders, Friends, Family $800k
    • Angels, small Venture Funds $1.5m (May 2006)
  • Profitable, $4M revenue run, ~30 fte employees
  • Two new games to debut in 2007
  • Seeking International partners
item based model
Item-Based Model
  • ‘Free to Play, Pay for Stuff’
  • Sale of in-game content by operator
    • Primary revenue source
    • May be combined with subscriptions etc.
  • Usually mediated through virtual currency
western market
Western Market
  • US and Western Europe
  • Largest Interactive Entertainment market
    • Retail driven
    • Console dominated
  • Nascent online games business
    • MMORPG’s: World of Warcraft, EverQuest
    • Casual Game Portals
western mmorpg business
Western MMORPG Business
  • Hit games are very profitable
    • WoW ~3M US/EU subscribers = ~$500M
    • 100k+ subscribers -> up to 70% net margins
  • Development bets are huge (~$50M+)
    • Games are undifferentiated
    • ‘Feature list compliance’
  • Opinion:
    • Glut of product, very few hits
    • Very bad business for Developers
western casual games
Western Casual Games
  • ‘Bejeweled’, ‘Diner Dash’ etc.
    • Single-player, often Puzzle games with ‘story’
    • Free ad supported web game
    • $20 ‘premium’ downloadable version
  • Was a good independent developer business;
    • ~$50k development costs, rising to ~$250k+
    • Reasonable channel and emerging publishers
    • Increasingly competitive
  • Opinion: dead-end business
    • Economics and distribution becoming hit driven
    • Downloadable model monetizes <1% of players
western casual game portals
Western Casual Game Portals
  • Advertising sales primary business model
    • Rarely share advertising revenue with developers
    • $20 ‘Downloadable’ model an after-thought
    • Games to attract a demographic, not to make sales
    • Most portals part of major online/media companies
  • Slow to implement new games and features
    • Rarely invest in content production
    • Aging web-based multi-player games
    • Slow to integrate games with new models
    • Problems sharing registration and billing platforms
  • Opinion: disruption ahead for existing portals
advanced casual games
‘Advanced Casual’ Games
  • ‘Korean-style’ Casual Games
    • Multi-player ‘console-style’ often ~8 players, sometimes MMO
    • Item ‘mall’ and virtual currencies
    • Often successful without portal distribution(?)
  • Attractive for developers and investors
    • Development budget in US of ~$1M
    • Low operating costs and very high item margins
    • Potential for ‘long tail’ and slow-building growth
  • Largely untested in western markets
    • Early signs are good!
puzzle pirates
Puzzle Pirates
  • Successful item-pay casual MMO
    • ~$45 average monthly revenue
    • ~$100 lifetime revenue, top players $10k+
    • Revenues now ~$340k monthly (inc. $100k subscription)
    • Conversion registered user -> customer ~5%
    • Low ~$750k development cost
  • Distribution: revenue-sharing partners
    • Miniclip, Neopets, Shockwave, Popcap
    • Little marketing investment
lessons from puzzle pirates
Lessons from Puzzle Pirates
  • Do not require .EXE installation
    • Everyone but ‘core’ gamers very download-adverse
    • Virus scanners cause problems
    • PP now served as signed Java applet
  • Distribution via portals is a problem
    • Requires integration
    • Doesn’t fit with $20 downloads or advertising
habbo hotel
Habbo Hotel
  • Teen chat room with Furniture sales
    • ~$70M revenues 2006, $35M 2005
    • Majority revenues EU via SMS
    • Claim to monetize 10-20% of players
    • Runs in shockwave plugin
  • Company: Sulake of Finland
    • $20M+ Benchmark Capital investment
    • Worldwide offices
    • Some content / marketing deals e.g. Disney
    • Market leader in US/EU
  • Opinion: Japanese stock market?
second life
Second Life
  • User-created Virtual World
    • Developer Linden Lab does not make any content
    • High-profile ‘landlords’ and business entrants
    • Low usage: 10,000 pcu
  • Hybrid land/currency business model
    • Linden $ player exchange for US$ (~$3M/day)
    • Primary model: renting world space
    • Secondary model: selling currency
  • ‘Not a Game’
    • Attempt to make generic ‘metaverse’
maple story nexon
Maple Story / Nexon
  • Successful ‘stealth’ release in US
    • Established global server with small team
    • Ramping up now on basis of success
  • Speculation on Kart Rider in US/EU
    • Numerous competitive games in development
albatross 18 pangya
Albatross 18 (Pangya)
  • OGPlanet US operator
    • Raised $1.5M from angels
  • Claims $25 monthly revenue per ‘player’
  • Exclusive partnership with Lycos
gopets live
GoPets Live
  • Korean-built viral online pet game
    • Worldwide distribution via local partners
    • ~125k US registered users
    • 25% of users, 50% of revenues
    • Virtual currency, item sales
ijji com
  • First major Korean games portal entry
    • Korean team shipped out to Silicon Valley
    • Acquired ‘Gunbound’, basis for ~3k pcu
  • Differentiated from US portals
    • Multi-player games
    • Community and avatar features
  • Opinion: will be hard to acquire audience
  • ‘Lite’ Java MMORPG
    • Runs in-browser, ugly graphics
    • Simple high ‘grind’ gameplay
  • Incredible success ages 7-14
    • ~3M active players, ~200k pcu
    • Free to play basic game
    • 750k premium subscribers @ $5 / month
    • Many competitive MMO-lite games in development
new casual game entrants
New Casual Game Entrants
  • US startups license Korean games:
    • mu / War Rock / Golf King
    • Acclaim: Bots, 9Dragons
  • Korean companies partner with US distribution:
    • Hanbitsoft: Albatross 18
    • Shot Online
collectible card games
Collectible Card Games
  • Magic: the Gathering Online
  • Lord of the Rings, Star Trek, etc. (Sony)
  • Very high ARPU
  • Niche market
social networks in us eu
Social Networks in US/EU
  • Dominant players
    • (US) and (UK, RoW)
    • Very hard to get traction with new entrant
    • Viral growth pattern can top out very fast
  • Cyworld: appeal of ‘mini-hompy’ unproven
    • Opinion: will not succeed in the US/EU market
pay for avatar
Pay for Avatar
  • Very popular with Venture Capitalists
  • Potential not yet clear
    • Successful with teen audience
    • Little revenue from item sales, yet
  • Very cyclic business
    • Good times are here, for now
  • Long-term growth modest
    • $316M / 2006 to $573M 2007 (DFC Intelligence)
  • Opinion: monetization of players will always have greater value
  • Xbox Live Excitement
    • Viable pay for item billing platform
    • Live Arcade for downloadable games
    • ‘Inspiring’ Sony and Nintendo
  • Revenues will grow, but slowly initially
    • ~$1BN business in 2009 (DFC Intelligence)
  • First Korean entrants (Webzen)
  • Opinion: unappealing for developers
    • Competing on console adds complexity and cost
    • Audience size and monetization potential uncertain
    • Good option for successful franchises
  • First MMO entrants
  • Operators are the roadblock
  • Billing platform under-utilized (50% fees)
  • Handset porting issues abound
  • Opinion: a bad business for developers and getting worse
what to do opinion
What to do? (Opinion)
  • Make small and cheap US/EU ‘organic’ bets
    • Build distribution and local expertise slowly
    • Very few acquisition targets and hot funding market
  • Carry on taking over the rest of the world
    • US market is not yet ready for Korean Games
    • Early entrants will continue to lose money
    • Asia, EU and RoW opportunities abound
  • Do not sell out to US/Japanese Publishers
    • Retail and console business to be disrupted by online
    • Korea is the worldwide market leader
    • Stay a mammal, don’t join the dinosaurs
thank you
Thank you!

Please download slides from:

Daniel James, CEO | [email protected] |