KEY TOPICS
Some Numbers Add-On Profits
Historically, persistent worlds (PWs) have been a 40–50%-margin business. For a developer or publisher, the only niche with significant support costs are the PWs (we're assuming you don't run a web game portal or assume bandwidth or hardware costs for a hybrid).
In an ideal world, PW post-launch support costs would be limited to approximately 40% of the total revenue generated (or 40% of the revenue goal, for newly released games building a subscriber base). Often, the percentage is closer to 60%, due to a lack of concern in the past for providing the customer service (CS) staff with the right tools to do their job quickly and efficiently.[1]
[1] Note that former SOE President Kelly Flock was quoted in the press during 2000, including the Wall Street
Journal, as saying that supporting EverQuest cost the company approximately $1.5 million per month, which represented slightly over 50% of basic subscription revenue from SOE's then 300,000-plus subscribers. The last announced subscriber total for EQ in 2001 was 435,000. If EQ's support costs have remained stable, SOE is coming close to the magical 40% operating cost number.
More and more publishers are learning the value of building adequate CS tools during the development process instead of tacking them on at the last minute. Well-designed tools allow each CS representative to do more in less time. During the next three to five years, support costs should go down across the board, and PW games will have a better chance of making the 40% or lower support cost mark.
[ Team LiB ]
[ Team LiB ]
Some Numbers
In Table 5.1, it is assumed that a PW will achieve at least moderate to high subscriber numbers by current standards—that is,
200,000–300,000 monthly subscribers at about $10 per month each. Note, however, that subscription fees are on the rise, as with NCSoft charging $15 per month for Lineage and Funcom's Anarchy Online (AO) and Mythic's Dark Age of Camelot charging $12.95. The second column represents the approximate number of employees that ideally would be devoted to the CS task. The percentage at the far right of each line item represents the approximate amount of an ideal 40% of subscription revenue that is devoted to supporting the MMOG/PW.
Table 5.1. Support and Operations Costs
These numbers vary by company and customer niche; each PW customer niche differs greatly in its needs. For example, an RPG requires a larger player relations staff than a vehicle simulation with fewer RPG elements.
Even at a level of 60% of revenue devoted to support, as shown in Table 5.1, a moderately popular PW (100,000 or more subscribers) will generate significant gross profit over a minimum lifecycle of five years.
Table 5.2 considers broad subscriber income numbers alone, not factoring in revenue from initial stock-keeping unit (SKU) and add-on SKU sales, which can and do amortize a product's initial development and launch costs.
Table 5.2. Moderate Support Costs, Subscription Games
Table 5.3. Low Support Costs, Subscription Games
A game that reaches 300,000 subscribers quickly, as EverQuest (EQ) did, will exceed or equal the gross revenue generated by even the most popular home PC SKUs within three years.
The bottom line: With a longer lifecycle than any single SKU and most series (Age of Empires, for example), PWs look to be the most profitable PC game products for the next three to five years. The first PW to reach 500,000 subscribers quickly is going to represent a huge windfall to the owner.
[ Team LiB ]
[ Team LiB ]
Add-On Profits
Until the past three or four years, most online games didn't really look at add-on revenue profits from alternative sources. Lately several games, among them EQ, Ultima Online (UO), and Dark Age of Camelot, have started to get into the merchandising of peripheral products, such as t-shirts and other clothing, jewelry, cups and glasses, figurines, collectible trading cards, fiction series books, and even paper and pencil versions of the online game. This can all add up to some nice incremental income to add to your margin, and you probably won't have to pay for the creation or production of the items. There are plenty of small merchandisers out there who will pay you a fee and royalties for the right to create and market these items to your customers.
One area of potential income that is currently the subject of controversy is the auctioning of player/characters and in-game items. If you've been paying attention for the past four or five years, you know that players have been using auction sites such as eBay to sell rare game items, in-game currency, and "buffed" characters to other players, sometimes for thousands of dollars. More than one small company has sprung up to do nothing but create and sell characters and items, and that is where the controversy comes in.
Most publishers don't want this activity in their games and don't support it. There are several reasons for this, all tied to CS and player relations resource expenditures:
A significant number of individuals who auction game characters and items are scam artists. The seller advertises an inventory for a character and, when someone has paid the auction price and taken possession of the account, the buyer finds that the inventory doesn't match the auction notes. When this happens, the seller is usually not available, so the player complains to the publisher or developer. This consumes hours of CS resources that can be better spent elsewhere.
Supporting such auctions by third parties, especially companies or individuals that do it as a business, tempts them into using bugs and exploits to grow characters more quickly, as seen recently by the Black Snow Interactive/Funcom AO controversy.
This not only keeps your security and exploit team hopping, trying to keep up, but it also has the tendency to skew whatever economy exists in the game and to irritate and annoy players who legitimately build their characters and find they can't compete with the doctored ones. In a game that features some form of player vs. player (PvP) combat, this is a very serious issue.
Most PWs have "spawn points," or areas where non-player characters (NPCs) and monsters that may carry rare items or necessary quest items regularly pop up after they are vanquished. As the creation timer on these spawns varies, sometimes being hours between spawns, players tend to "camp" on these spots, waiting for a spawn to occur. Companies making money off auctions tend to bring as many people as possible to camp and monopolize acquisition of these rare items, effectively locking out legitimate players from having a chance at a spawn. Many rare items are needed to advance in certain quests or complete armor or weapons sets, and if a player is blocked from getting them at the spawn points, he/she must either buy them or quit the game in disgust. This costs the publisher players and subscription fees.
The problem with just banning the activity and not supporting it is that it is unenforceable. If you drive the auctions off eBay or other large auction sites, the perpetrators will just set up their own site and the support calls will just continue. One way to have at least some control over the situation is to have your own auction site.
The advantage here is, as the publisher or developer with access to the source code, you can lock down accounts that put up an auction and display the contents for all potential buyers, assuring that auctions run from your site won't be stripped before transfer. This kind of security is good added value to players. You also can bill the buyer and subtract a fee from the sale price before transferring the rest to the seller, effectively making incremental income profit from the activity.
No publisher has yet done this, and there may be legal reasons not to get involved. You also have to consider the intangible effect on your customers, many of whom deplore the practice. However, it is an option for you to consider.
[ Team LiB ]