Bringing the item based model to the western market
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Bringing the Item-Based Model to the Western Market. Please download slides from: http://djames.org/gstar.ppt. Daniel James, CEO | [email protected] | www.threerings.net. 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

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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:

http://djames.org/gstar.ppt

Daniel James, CEO | [email protected] | www.threerings.net


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

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


Runescape

RuneScape

  • ‘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:

    • K2network.net: 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

    • Myspace.com (US) and Bebo.com (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

    • Meez.com

    • Stardoll.com

    • GaiaOnline.com

  • Potential not yet clear

    • Successful with teen audience

    • Little revenue from item sales, yet


Advertising

Advertising

  • 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


Console

Console

  • 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


Mobile

Mobile

  • 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:

http://djames.org/gstar.ppt

Daniel James, CEO | [email protected] | www.threerings.net


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