Tobold's Blog
Friday, March 06, 2009 thinking ain't dead yet

Being already in the middle of the next economic crisis, one would think that that the lessons of the previous crash have been long learned, and the thinking that lead to that bubble long discredited. Unfortunately that isn't the case. Some people working on various online projects *still* think that the most important number to count is "eyeballs". They still measure the success of anything by simply counting the number of users / viewers / visitors / players, with no regard of whether these are paying customers or not.

For example Raph Koster has found the game that has more players in North America than World of Warcraft: YoVille. While he admits that "there is little doubt that WoW makes a lot more money", he still considers YoVille an "answer" of "whether there is room to go around WoW". Sorry, no, it isn't. Social spaces aren't even games, and most of these millions of players use YoVille mainly because it is free, and it is on Facebook. Very, very, few people will be willing to spend the $200 a year on YoVille that a typical MMORPG costs. To beat WoW, a game does not have to beat it's subscription numbers, but it's revenue and profits.

On the other end of the scale some people seem to have realized that big isn't always beautiful, even if the customers are paying. Buying a copy of the recently released Darkfall is extremely hard. Darkfall only has one server, and Aventurine is only selling as many copies as are necessary to keep the population of that one server stable. Copies are sold once a day, at a random time, and are usually sold out quickly, reducing some fans to actually camping the website. Amidst jokes that even buying Darkfall is hardcore, commenters often realize that this strategy isn't all that stupid. It avoids the boom and bust fate that both Age of Conan and Warhammer Online suffered. And of course by NOT letting in everybody, it makes those who are in feel more special. Financially it produces a more steady income both from a stable number of monthly subscriptions, and a steady stream of new players buying the game. Assuming that the development cost of Darkfall was low enough, the lower cost of limited infrastructure hopefully leads to Aventurine having a decent profit margin. That must be better than buying lots of serves for release, and then having to shut them down later. A profitable company can always find investors for their next project. A company that only has great user numbers, but no profits, will have to rely on investors who like high risks. And due to the current crisis, there aren't many of those around any more.
Youporn is killing porn companies but makes much less. File sharing is much less profitable, if at all, than the music industry it clobbered...

Profit and revenue are not necessarily the way to measure success either on the internet.
Assuming that the development cost of Darkfall was low enough
How much do you think 10 years of wages cost? Unless everyone was on McDonalds wages, then yea, this baby was CHEAP! When I look at the game, it sure does look cheap you may be right!
I have wanted to write a post every day for the few days about how wrong you are. :) (Like, you were wrong about datamining too, sorry). This time I cannot resist.

This is not about dot-com thinking. It is about inability to compete. WoW has made it very very difficult to compete in that market. The point of the post is *finding other markets*. The numbers are proof that those markets exist. In particular, in this case it is about finding a new market that is relatively uncrowded, has demonstrated willingness to pay, is extremely large, and is relatively cheap to service.

No, a company with profitable users but too few CANNOT find investors, sorry. You have to have both revenue AND scalability to garner significant investment. You might be a highly profitable buggywhip company and not be worth investing in because your market is just too small. That said, nowhere in the article did I make monetary claims for YoVille.

The fact is that for MOST people looking for a business out of virtual worlds and MMORPGs, the YoVille model is increasingly LIKELIER to lead to profits than the WoW model. Hence why I keep talking about it. Most companies cannot muster enough cash to enter the AAA MMORPG market in the first place; most cannot compete with WoW in terms of sheer scope; most cannot muster the market awareness; most cannot achieve the level of distribution; most cannot fight the incredibly powerful competitive advantage that being the market leader affords WoW in terms of "going where your friends are."

Far more CAN develop for the web, leverage SNSes for distribution, meet the market requirements for scope, and find virgin territory. Are the folks there hardcore enough to monetize to the tune of $15 a month? No, not yet (market logic dictates that some will be, eventually). But if they can crest the $1.30 general target (see the many many blog posts from VCs and biz folks analyzing this market) they can do quite well and make millions of dollars.

People who comment negatively on all this need to not make the mistake of letting their dislike for the types of products affect their clearheaded assessment of the business landscape. If you are going to make a critique on the business basis, you need to understand the landscape better.

PS, Aventurine's strategy sounds very much like the typical web company's strategic approach. It sounds very much NOT like the blockbuster AAA boxed game title approach that Blizzard has mastered. YoVille was once similarly hard to find.
But even if they make a million dollar in revenues, that is still only 0.1% of WoW's revenue. So spurious claims of "YoVille beats WoW" are just empty hype, just like most businesses were hyped. Of course it is easier to make a million dollars than it is to make a billion dollars. But then you are in a very, very different league, and really shouldn't do any comparisons.

Or as somebody said after the crash: A rotting carcass has millions of visitors too! (of the insect variety).
The cost and financing of Darkfall is a mystery but multiple sources say they procured a 20 million Euro convertible bond at one point. That is not a small about to pay off with only a 10k user base so they better hope can keep growing.
I don't see Raph making the claim "YoVille beats WoW".
I'm a bit confused though, if a company is making a PROFIT (not revenue), does it matter if the profit is what WoW makes? I mean sure everyone would love to make WoW-like profits, but is any company going to say 'we failed' if they turn any kind of profit (this assumes paying off debt and such)?

WoW makes it difficult for huge-budget MMO titles like WAR to compete. One could argue (though I hate to admit it of course) that WoW has actually helped DF. Without WoW, would DF have had as much buzz with zero marketing effort? Is the next raid Blizzard adds really going to convince anyone enjoying DF to leave and try it? I doubt it, but perhaps a player sick of PvE might try DF because he read a blog or fansite about it while looking for a raid strat. At that point, DF is looking rather smart in terms of a business plan, while it looks like EA/Mythic are fighting a large uphill battle.
I'm wondering how long it will be before your typical gold farmer realises he could probably make a mint by grabbing one of them darkfall accounts and flogging it on ebay.

Or have they planned for this and put preventative measures in place?
@Jonneh : My initial reaction to the reports that Darkfall accounts are sold out within minutes of becoming and that the website has serious lag issues was that a large percentage of the people camping the website are in fact gold farmers.
You guys cant be more wrong. There are games out there which have far more players than WoW. And their paying customers spend MUCH more per year on them as the subscription rate for WoW. Habbo hotel? Neo Pets?
"I'm a bit confused though, if a company is making a PROFIT (not revenue), does it matter if the profit is what WoW makes?"

It does to people who want to invest in a new game/company in order to make money. If a game makes a profit of $500,000 a year but a large company/firm/private investor put down $50,000,000 for the game, he or she will die before they even get their investment repaid to them. That is why everyone goes on about WoW. It makes enough profit per year that the initial investment would be a good way to make money.
Teut, no. Otherwise Activision would be buying whoever makes Habbo Hotel and not Blizzard. Money does not lie, while everyone can make a press release with numbers sound impressive.

Jonneh, check ebay for your answer.
@Jason: I was including initial investment when I say profit. In your example the game is NOT profitable until they pay off those investors. DF certainly did not cost 50mil to make, so they don't need nearly as many users before they pay off debt and start making profit. WAR having 300k users is good for an MMO overall, but not so good when you look at the money invested to make the game. WoW overall is a bad example because they are so far above everything else in the space. If I'm an investor, I'm not looking to make a profit using WoW user numbers, and instead budget around 100-500k. Anyone planning on making a profit when they hit 10 million users is just setting themselves up to fail, regardless of who good their game might be.
All that leads me to believe is they sell very fast

If there are preventative measures in place feel free to share the info :)
@Jonneh: I was just saying that if the farmers are buying accounts to sell on ebay, they would be up there. No idea about preventative measures.
I find it hard to believe that the same "click-thru" and "unique visitor count" metrics are still being touted as valid data models, especially when the burst illustrated the exact opposite. Investors learned a very costly mistake when the previous bubble popped, and it really surprises me to see Raph engaging in this type of social networking theorycrafting amidst reports that these types of metrics are of little use in todays webspace.

You either have a product to offer at a fair price, or you're a saleman with a broom and a bucket of glue posting ads about a product you -wish- someone would read about.
It is strange to me that this is so hard to follow.

First, you can choose between an market entry cost of say, $500,000 or $50,000,000.

Then, you compound this with "odds that you will hit" and be profitable at all. In the boxed product games market, the answer is "1 in 10." Most games do not make money. In an entrenched market with a dominant market leader with a huge marketing budget and strong social pull towards it, the odds are even lower. In a virgin market, with no serious entrenched competition, the odds go up. Especially if you can iterate 10 times at a cost of $50,000 per iteration.

Then you have market size. In this case, the original article's point was "they are about the same, and in fact the other market may be bigger." All evidence would be that the addressable market for the SNS/web based world would be around ten times the size.

Then finally you have monetization threshold for a given user. And the common assertion is that it's lower -- perhaps 1/10th -- for the larger market. But there are plenty of market proof points that this broad audience is being successfully monetized by adjacent products in the space.

You can take your $10-50m and roll the dice, and have 1-in-100 odds that it will even ship and then break even, much less reach WoW numbers. It used to be better odds, but it has gotten worse, and continues to get worse, and will only get worse in the future.

Or you can take $100k-10m, launch one of these web products, or a free to play with RMT or with microtransactions, or whatever. You can tackle a different market iteratively, husband your money, have much higher odds of hitting, and be able to build an audience in the millions, with an expectation of getting around $1-5 a user every month.

What is so weird about this? Why the instant negativity? This isn't just about dot-com eyeballs. There are MANY companies out there right now garnering plenty of money. There's no questions of whether the revenue is hypothetical anymore. It's a settled question.
What is so weird about this? Why the instant negativity?

The negativity comes from the comparison with WoW. It's "YoVille has more users than WoW" in big letters, and "but most of them play for free" in the small print. It just smells like the old hype, even if you didn't mean it that way.
Everything is going to get compared to WoW -- it's the reference point for everything now. I think you may need to get used to it. :)

The way to think of it is "YoVille MAY have more users than WoW in North America" "Most of them play for free" "YoVille can still make a lot of money" "In fact, games like this can make more return on their investment, dollar for dollar" "WoW is one of the last of its kind." :)
Why the instant negativity?

It might be because someone titled his post "YoVille bigger than WoW in NA?" and then went on say that "YoVille is almost certainly more popular than WoW in North America".

If you don't want people to point out the flaw in your comparison, don't make it.
It might be because someone titled his post "YoVille bigger than WoW in NA?" and then went on say that "YoVille is almost certainly more popular than WoW in North America".

You mean, because I posed a question, and then answered it?

The "flaw" is apparently that I was supposed to talk about money instead. :P
Another point would be: why make this comparison at all ? What do these two games (if you can call YoVille a game) have in common ? They're both played online ?
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