WOW epic mounts vs. Friends for sale

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 early 2000s. Best known as a PC game, but sold vastly more on PS2.

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.

Presentation

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?

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11 Comments on “WOW epic mounts vs. Friends for sale”


  1. Sunday at 22:43. It seems that the slides are not available on Slideshare as the service is up’n’down all the time. If you can’t view the slideshow (marked private), or you get 503 or 504 error codes, or you don’t hear the audio track, please try again later.


  2. Monday at 06:15. Slideshare is working and you can view the presentation now.

  3. Taneli Says:

    Excellent stuff! Looks like the kind of blog entry that took half a day to write, I’m sure ;) Wonder how much the PC Online MMORPG market can still grow..

  4. Adam Says:

    “PC Single player market is dying … We can argue the reasons, but the proof is indisputable.”

    How about we argue this “proof” first? What are you basing this sweeping statement on?

    Because I’m sorry, but I don’t believe that the market is dying. There are individual publishers – and developers – feeling a lot of pain, but it’s a big jump to say that this is because the market is dying. But at the same time 2nd hand sales for the market seem to be doing extremely well…so well that EA’s putting DRM in their games to prevent 2HS instead of piracy :). That, to me, shouts “thriving market that disagrees with the publishers short-sighted and outdated pricing models”.

    And I loved Mark Rein’s theory that “Intel is single-handedly destroying the PC games industry”, it was nice and logical and sensible and a good stimulus for thought – but again, that doesn’t make it true.


  5. Adam, the sales of PC games have over the past five years been steadily decreasing, while the console game sales have been growing year-over-year at double digit percentages.

    If you were to remove the big hits (The Sims and MMOs) from the PC figures, you’d end up with (guestimating here) a market that is less than half the size it was in the early 2000.

    I’ve pitched a fair number of games at publishers and shared insights with a number of developers and agents pitching. The story is the same everywhere. PC is not important, it isn’t making the money back etc. If the publishers don’t care, and trust me, they care about money, it means simply that it isn’t making money.

    Microsoft has successfully moved a lot of PC gamers into console space with Xbox. Sony succeeded tremendously in the previous generation and now Wii is sucking is all the new blood.

    Yes, you can be successful in PC single player if you are targeting specific niches, but as a mainstream market it’s dying.

    NOW, that is the reason why I advocate strongly going to persistent online experiences. Perhaps we should say that the PC market is a fenix. Dead as single player, booming at online.


  6. Adam, here are some hard facts from NPD that it is only semi-reliable source of market data. The North American PC game software retail sales from their peak in 1999 to 2007:

    1999 $1.9 billion
    2000 $1.78 billion
    2001 $1.75 billion
    2002 $1.4 Billion
    2003 $1.22 Billion
    2004 $1.08 Billion
    2005 $0.95 billion
    2006 $0.97 billion
    2007 $0.91 billion

    In 9 years the PC market has dropped to less than half of its peak. The top selling PC titles for 2007 were:

    1. World of Warcraft: The Burning Crusade – (Vivendi) – 2.25 million
    2. World of Warcraft– (Vivendi) – 914K
    3. The Sims 2 – (Electronic Arts) – 534K
    4. The Sims 2 Seasons Expansion Pack – (Electronic Arts) – 433K
    5. Call of Duty 4: Modern Warfare – (Activision) – 383K
    6. Command & Conquer 3: Tiberium Wars – (Electronic Arts) – 350K
    7. MS Age of Empires III – (Microsoft) – 313K
    8. Sim City 4 – (Electronic Arts) – 294K
    9. MS Flight Simulator X – (Microsoft) – 280K
    10.The Sims 2: Bon Voyage Expansion Pack – (Electronic Arts) – 272K

    Summing the TOP10 together:
    WoW 3,164 million
    Sims 1,239 million
    Others 1,62 million

    If we are generous and extrapolate that the rest of the PC games were 50% on top of the TOP10, we get to around 9 million sold units. In this case WoW & Sims would still amount to roughly a half of the market, as I guestimated. So, from the PC gaming peak in 1999 (before the release of The Sims or WoW), we’ve dropped to 25% market size when excluding The Sims and WoW.

  7. Adam Says:

    Meanwhile GameStop *ALONE* is making over $1billion a year from 2nd hand sales (all formats, so a fraction of that will be PC) – http://www.forbes.com/2008/03/06/gamestop-target-bestbuy-pf-ii-in_ty_0306soapbox_inl.html?partner=msn

    So, again … is it really that single-player gaming is dead, or is it merely that a sales model from 30 years ago is dieing out? :)


  8. Yes, a fraction of it will be PC. PC games represent 10% of the total game software market in USA in 2007 ($9,5 billion http://bit.ly/mv0BJ). Please also take into consideration that GameStop’s 2nd hand sales also include hardware and they don’t break out the split between HW and SW.

    Steam is the best established digital distribution channel, but still the sales of Half-Life 2 at retail eclipse the sales thru Steam (this is direct from Valve employees). So the PC decline it is not simply about the inconvenience of buying from a brick’n’mortar store.

    As a business model the PC single player model is dead. I don’t think single player gaming as game mode is dead, but the PC business model is dead, so we definitely agree on that. Just look at console, which is doing healthy single player sales.

    Then again, some industry luminaries like Raph Koster have gone as far as to claim that single player gaming is a historical aberration =) (http://bit.ly/1OGtXq, slide 19 in the notes).

    So I guess we can agree to agree? ;-)


  9. The final nail in the coffin:

    The growth of online gaming make this the last year that Electronic Arts (NSDQ: ERTS) will produce offline-only games, said CEO John Riccitiello.

    http://feeds.paidcontent.org/~r/pcorg/~3/420833912/


  10. I don’t claim to be an expert on the issue, but I sure as hell love the thriving discussion and tight analysis. Jussi’s blog has opened my eyes to the game industry and once opened can’t get enough. Great blog Jussi! Thanks for seeing the effort of sharing your thoughts.

    Ville.


  11. Thanks Ville! Everybody reading should also add ArcticStartup (http://www.arcticstartup.com/) to their feed list as there is no better source to follow what’s going on in the Finnish start up scene and in the Nordic region.


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