The game industry used to be packaged goods industry. We spent anything between six months to several years in product development mode trying to guess what the customers would want to buy, what we could do better than our competitors do, building technology, tools and content. When all was done, the ready game was shipped to the manufacturing plant and out would pour truckloads of shrink wrapped boxes ready to be hoisted on the shelves of GameStop, EBGames or at Amazon’s virtual shelfs.
For all its technological and media breakthrus, the games industry in the 1990s was following a business model borrowed from cereal manufacturers. We even didn’t have the long tail of movies , which have first box office sales, then pay-per-view TV, then premium channels, hotel channels, DVD sales, network TV, soundtracks… Well, you get the picture. All we had was a a couple of months to get the game sold at brick’n’mortar stores, and if we were lucky, the store would restock our title. The luckiest titles could see a release as a Bestseller title a year or two later at a discounted price.
Not terribly exciting is it.
Luckily broadband entered into the picture in late 1990s, and became prevalent in the early 2000s. Games could be delivered electronically as downloads, but a lot more importantly, games could be online services. MMOs like Lineage, Everquest and finally World of Warcraft (11 million users at last count) came to the market and attracted millions. Virtual worlds like Habbo Hotel (108 million registered, 9,5 million monthly users), casual MMOs like Maple Story and social playing sites like Stardoll (20 million registered users) appealed to audiences outside of the traditional gamer market.
But there’s no hiding the trouble.
PC single player market is dying
Max Payne, multi-million seller in 2001 & 2003. Best known as a PC game, but already five years ago sold vastly more on consoles, especially on PS2.
As a mainstream market the PC single player market is dying. The main culprits are rampant piracy and the success of video game consoles. The situation is so bad, that releasing a PC version simultaneously to a console version of a game, you are pretty much guaranteed to loose out on a lot of sales. The PC version will be pirated typically before the game is available at retail, and many console gamers will get the pirated PC version and forgo buying the console version. We can argue the reasons, but the proof is indisputable. Game publishers are increasingly postponing the PC versions or cutting them completely, even if the added cost of developing a PC version can be relatively low.
You can still succeed with PC single player titles targeted at niche audiences (e.g. hard core strategy games). Downloadable PC casual games (see e.g. Big Fish Games) are doing quite well and The Sims are also doing quite well. The reason is simple: their demographic is less likely to pirate the game and increasingly these titles use some kind of online persistence to add fun to the game and prevent piracy.
PC online market is thriving
The solution to this PC problem is clearly evident. All PC titles need some type of online persistence and preferably online multiplayer support. It doesn’t have to be a full fledged MMO. You can start with relatively simple things like
- Leaderboards, cups, challenges
- Shared content
- Shared actions (something I do has some effect on your gameplay)
Full-on, persistent world, massively multiplayer environments naturally are most resistant to piracy as well provide highly compelling reasons to play. WoW having 11 million great reasons (=users) going for it.
Core vs. social & casual markets
The core gaming market (PC single player, MMO, console games) is huge market. Its revenues from the vast majority of the $37 billion global games software sales (year 2007). This market is predicted to grow steadily at around 10% compounded average growth rate. The revenues are huge, but the audience size isn’t nearly as impressive when compared to what the social and casual gaming segments have been able to attract is just a few years.
Casual games, to which I include also casual console games like Guitar Hero, Singstar, Wii Sports, Brain Training and the like, sell in overall in the billions of dollars, and are the industry’s primary growth driver. It’s been two years since the launch of Nintendo Wii, and it still selling out. Guitar Hero launched a huge music game segment, that almost single handedly raised Activision as the world’s second largest games publisher (after merging with Vivendi’s game unit, the combined Activision-Blizzard is now neck and neck with Electronic Arts). These titles have expanded the definition of games, made the much more socially acceptable, and attracted millions after millions of new players. They’ve converted diehard opponents of digital games into fun-loving players. I can overstate how amazing this has been.
At the same time social games on social networks like Facebook and MySpace are the second largest category after “just for fun” apps like Funwall and Superpoke. These simple, addictive and often outrageously viral games attract at best over million monthly average users. The monetization has been primarily advertisement based, but new Cost Per Action (CPA) methods (Offerpal, Super rewards) as well as the sales of virtual goods are starting to make a difference. It has been claimed that Mob Wars is the best monetizing game application on Facebook and allegedly makes over $20 000 a day, which would mean well over a one million US dollars in yearly revenues.
I’ve tried to summarize my thinking about the core, casual and social markets in the diagram below as well as make some predictions on where the market is headed.
Please note that the diagram is a generalization and I’ve purposefully omitted all figures. You should take it is an opinion, not as a market research data.
I did a 20 minute presentation on this topic recently at the Mindtrek conference. You can find my slides at Slideshare along with an audio track.
I blogged earlier about the excellent panel that followed the three presentations in the “Business of playing together” track.
So, what do you think? Is the PC single player market as doomed as I think it is? Are there going to be big returns on the huge investments VCs are making in the market as we speak?