Tobold's Blog
Monday, January 26, 2009
Cost reduction at Blizzard?

With World of Warcraft having more subscribers now than half a year ago, plus Blizzard making wagonloads of money from selling millions of copies of Wrath of the Lich King, one would assume Blizzard to be in great financial health. Unfortunately Blizzard is not a stand-alone company, but part of Activision Blizzard, whose share price dropped by half in that timeframe, from $18.80 to $9.40. That could very well have to do far more with the general financial crisis than with the company itself, but companies don't tend to take such drops lightly. While we heard from Mythic and other game companies reducing staff, there have been no news of people fired at Blizzard. Nevertheless we have to ask ourselves whether Blizzard isn't in the process of reducing cost.

The most visible indication for cost reduction is that obviously World of Warcraft doesn't have enough server capacity right now. People can't enter instances because there are no instance servers available, and many raids suffer from lag. Yesterday our raid group had to give up on Heigan, because we had about 3 seconds lag, and it was just impossible to avoid the flames, as where you thought you were and where the server thought you were turned out to be rather different places. Other players report problems with being frequently disconnected when in instances.

And as strange as it sounds to have "Blizzard" and "rushed" in the same sentence, Wrath of the Lich King is still obviously missing some development time. If you look at the expansion critically, you'll find that Blizzard shipped it without any major new raid dungeon. There are a few one-boss dungeons, and one raid dungeon recycled from 2 years ago, and that is it. How hard raid content is doesn't matter as much as how much there is of it. The current version of World of Warcraft also has obvious big problems with class balance. And I'm not talking about subjective feelings of underpowered classes, but of facts of classes being boosted in one patch, just to be "nerfed to the ground" in the next. Several classes have seen their power level yoyo all over the place.

If we look closer, the year 2009 doesn't look all that good for Blizzard financially. There will be less subscribers at the end of this year than there are now. That isn't a prediction of doom, but just the natural cycle of subscriber numbers, that peaks shortly after a new expansion, and then slowly falls off. And unlike 2008, there will be no new expansion to sell at the end of 2009.

So, is Blizzard foreseeing all this and already started to reduce costs? If they count on there being less players soon, they could well decide to not add all the hardware needed to make World of Warcraft run perfectly smooth during peak times now. They might not have fired people, but how many did they move to other projects, like Diablo III or their next MMO? So, is Blizzard treating WoW as a cash cow to finance other projects, while investing only the strict minimum into it?
I think you are a bit a doomsayer and making too much of the financial crisis.

But now it gets funny: Blizzard predicted the world wide financial crisis and thus decided to develop less raid content and reducing staff beforehand.

I can't comment on cost cutting measures Tobold but the Cash Cow comment is very inciteful. Any MBA will tell you that the BCG definition of Cash Cow (from Wikipedia is:

Cash cows are units with high market share in a slow-growing industry. These units typically generate cash in excess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a "mature" market, and every corporation would be thrilled to own as many as possible. They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.

If Activision Blizzard are indeed treating WOW as a cash cow it would indicate that they believe MMORPG growth has plateaued out and it has become a "slow growing industry". I wouldn't be surprised if this is the case - a major theme of my "mmo's are history" posts from a few months back is that mmos aren't attracting new players any more. They are just fighting for the same old group of players.
Strange times indeed, I just can't get my head around what Blizzard are up to.
Curiously enough, the "fighting over the same old group of players"-meme was also seen in the Everquest days. Then Blizzard proved the naysayers wrong by refining the DikuMUD/EQ formula further and coupled it with unparalleled polish. But now.. the talk about a WoW-killer costing a billion was a huge disincentive when the economy seemed fine, but it'll probably be almost-impossible to find a suitable investor now. And that's assuming that you already have a dream team of MMO developers.

In any case, one should not forget that while Hellgate: London and Tabula Rasa perished, most of the competition is alive and well in the cash cow bracket. If one likes WoW, it won't be all doom and gloom once things settle down.
One thing is for sure, Blizzard is using Wow as a cash cow for other projects. One can go back during the days of announcement of StarCraft2 and can see this has been said by developers and `executives'. Whether they keep wow-related costs at a minimum...?
Possibly. Assuming there is no overhead from other vendors they work with (they do not make the servers themselves :-p), Blizzard could possibly expect to releive the lag issue when the new - alledgedly hard - instance is introduced or when their clients stop playing as much. Warcraft subscribers have increased but I am not sure we can find how many of them are active - hence the people that affect performance. I am sure the company is trying to predict these trends and definitely have more info than the average punter does :p

I am not too knowledgable about market issues and economics so I might be talking crap here.
Well it seems they have been more aggressive in opening up servers for transfers to equalize the number of players across realms and thus reduce the load on any one server/group of servers without adding much capacity (though they have opened new realms).

I find the thought odd, though, that Blizzard will be suffering any financial difficulties, or even feeling a significant financial pinch, later this year. By most accounts, Starcraft 2 looks on track for a late 2009 release and that alone will sell millions of copies. Activision-Blizzard may, like EA, be struggling as a whole but I doubt that management will start cutting costs; after all Blizzard is the goose that has continued to lay golden eggs and no one wants to interfere with that.
I am much more inclined to think the performance problems are limitations in available tech. IE it's not possible to by bigger or better servers than what blizzard is using and due to code they can't just add more. I think many of the fights in naxx require more calculation server side than fights in the pass and more people are able to raid (naxx is easily pugable) so a lot more people are running naxx 10 than was expected.

Servers are cheap compared to optimizing code, if blizzard was able to fix the problem by tossing more hardware they would do it. That is what they did with BC. Remember how bad it was in the beginning of BC with lag/world server/etc crashes.
Wrath is lacking in content for two reasons: Starcraft 2, and Diablo 3.

Blizzard probably figured that a majority of their players are already addicted to WoW so they just tossed them the Wrath bone, and went back to working on their next two big titles. And that's a wise move because only a small percentage of the player base probably saw Naxx at 60, so for most people Naxx is a new Instance. Meanwhile, the serious Raiders who both saw and beat Naxx last time around are so small in number that Blizzard figure any loss in subscription from them quitting would be minuscule. And are they really likely to quit? Probably not, because they've got so much time invested in their Toons that they cannot walk away, even though Blizzard isn't catering to them as much anymore. Instead they continue to Raid and farm for those last couple of pieces of their Tier-X set, week after week after week.

Blizzard know exactly what they're doing. They're giving almost every subscriber just enough incentive to keep playing, and keep paying.
It's also worth noting that not all aspects of Wrath were underdeveloped. In particular, it seems to me that there is far, far more single-player levelling and questing content in Wrath than BC.

The zones are far larger. There are 11 of them as opposed to 8 in BC. There are far more quests in each - 130 quests required for the Alliance achievement in Borean Tundra, compared to 80 for Hellfire Peninsula. 1500 quests total as opposed to 1000 in BC - and that's after patches added a bunch of quests to Outland.

It looks to me more like a change of focus - although I agree, the lack of raid content is extremely odd. Having said that, what percentage of the playerbase actually saw most of the BC raid content? I've never seen anything past Naxx, for example. Perhaps they just decided to focus on stuff that more people would see.
Gah. Kara, not Naxx. I've got WoTLK on the brain.
Of course Blizz/Activision is treating WoW as a Cash Cow. Like Capn John mentioned its mainly because of their 2 upcoming titles.

Keep your cost at minimum while trying to "satisfy" your customers enough that they don't quit for another game. Great business move by Blizzard. That's why they are one of the big players out there.

You prolly won't see any big layoffs until SC2 and D3 are ready for release.
We all know that Blizzard has completely separate teams working on D3, SC2, and WoW. Therefore, this guessed ebb and flow of resources is not true.

A more reasonable explanation for the lack of initial raid content is that Blizzard spent most of its development capital on the 71-80 set of content.

They have stated already that Ulduar is complete and waiting testing, and more than likely they are already working on what is to come after.

Blizzard is famously tight lipped about its development status when it wants to be. We should not confuse their silence to mean they are not working.
This past Christmas people were pointing to Gamestop's Q4 revenues and calling video games "recession proof".

Another alternative to consider is not that Blizzard is reducing costs by not expanding server capacity, but instead they were caught off-guard and are trying to determine how to respond. I'm not doing the fanboy thing, I am just pointing out there are multiple reasons (which are not exclusive) for what seems to be capacity problems.
Every company is having financial stress in a recession. It only makes sense that regardless of their economic standing Blizz would trim the fat to mitigate the damage for when crap hits the fan.
The widespread adoption of broadband did more to expand the market for MMOs than any particular game ever did.

Don't give WoW too much credit; it was in the right place and the right time in addition to being a good MMO.

I think the population of MMO players has probably gotten pretty static, in that there aren't pockets of people who want broadband but simply can't get it anymore (at least in the states and Europe). The burnout rate on the game will keep it growing, but not nearly as explosively as it once did. Think IPods and cell phones; healthy businesses but they won't see the explosive growth they used to.
Class balance was pretty screwed up in TBC until the first patch or two... tanking feral druid dps, anyone? Rogues being useless in heroics? Plenty of hybrid dps specs still pretty useless? Locks too good? Warrior tanks sucking? Don't get me started on vanilla. Maybe it is a bit worse this time.

But the instance server thing is pretty painful. I think Blizzard just doubled or tripled their raiding population by releasing an easy raid, and they weren't ready for it. They'd have to buy a whole new round of instance servers.
While the instance server thing is a pain, I think Blizzard is probably making the correct move. Think about it compared to the last two big name MMO releases AoC and WAR. They had to add a ton of servers and staff because of the initial boom of player base which did a near vertical drop after the first month was up, and is now steady at the actual player base that are truly invested in the game. I think they just found a happy medium where they figured everyone and their mother coming back into the game, and then rather quickly dropping out again.

The current server tech will probably be more than enough once the subscriber number even out. Saving money on hardware that will be considered "useless" in a month or two due to lack of players. Putting that money towards development time of any of their games (including WoW) is probably the better idea.
The major problem for the financial crisis is access to cash. Companies running on margins and/or using advances/loans to keep afloat have had no way of obtaining liquidity. This is not Blizzards problem they have, if nothing else, huge subscription fees coming in from WoW. For an illustration of how effective that is for cashflow, check out EVE vs. the Icelandic economy, not as big a game, but also a tiny economy.

Will Blizzard be affected by reduced consumer spending, of course. But I'd assume less so than many companies for the simple reason that if you are cutting your gaming purchases back from say 4 titles a year to 2 or even 1 for 2009 due to a reduced entertainment budget then I would suspect you are more likely to buy from a company you trust and consider to be 'quality'. Thus personally if I'm buying games this year (with a sadly reduced budget) it's Bioware, Blizzard, Cryptic Comet etc. that I'm looking at for my purchase(s). They are safe, probably good value for money and most likely to have good post-release support.

In this light I'm curious about the latest Blizzard issues after WotLK, you'd assume that emphasizing quality would be the goal to retain one of the things that is a strong competitive advantage for them. It may be though that we, as players, have been a bit spoiled, and that as with the BC release, a lot of the bugs will need time to be ironed out. As someone mentioned, if it was just hardware that was the problem we'd probably have a fix already.
If you look at the expansion critically, you'll find that Blizzard shipped it without any major new raid dungeon. There are a few one-boss dungeons, and one raid dungeon recycled from 2 years ago, and that is it. How hard raid content is doesn't matter as much as how much there is of it.

This is deliberate though. There was a big thread on Elitist Jerks asking for raid content to be spread out over several patches, rather than the all at once model of TBC.
You can almost certainly link the subtle change in quality assurance to the merger of Blizzard and Activision. Activision doesn't have that small company mentality of putting your heart and soul into your work like the original Blizzard *had*, it's obviously well on its way out since Blizzard sold out.

Was Wrath rushed? I think so, at least there's certainly something wrong with the amount of available content right now. Raid instances are one thing, recycling Naxx wasn't a bad idea per se given so few players had experienced it before BC came out, and they did add two modes to all raids.

The rest of the content (or lack thereof) is rather annoying though and realm stability is putting the nail in the coffin for people on heavy-pop realms.

Wintergrasp, a major selling point for Wrath, is an unplayable slideshow.

Crafting professions are incomplete and pointless (except for jewelcrafting).

Class balance, despite Blizzard's new motto of "bringing the player, not the class" isn't working nearly as well as they hope.

Arenas are in a dire state due to having such high burst damage from a few select classes, forcing weaker ones to literally boycott the whole PvP system.

I'd say that Actiblizzard is doing a fine job at hurting their cash cow right now, even if we are only part of the vocal minority who is annoyed by their recent approach to dealing with issues.
There is no excuse for WoW not having enough servers.

In one of their recent investor meetings, Blizzard execs announced that they have only spend $200 million dollars on ALL WoW costs since the time of its release. That included everything: customer service, electricity bills, servers, everything.

They make that much money in 2 months.

There is no excuse for them having a lack of server capacity.

Muckbeast - Game Design and Online Worlds
I'd definitely set Activision ad the bad guy here, for a number of reasons. Why else would Activision buy Blizzard if not to dip its face into that neverending money stream that comes from players? Why else would the entire game system be completely reconfigured so that every class is essentially the same as every other one? Why else would there be so few items as compared with the previous games? Why else would Naxx be dumbed down to the point that it makes Kara look easy? They're milking this thing dry, because their own internal data probably says they've peaked. So bleed it out, get as many people in as possible before the place truly fails.
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