From a Business Perspective

Your MMO is not a success based on how many players you have, whether they supply enough revenue to keep the servers running, or even if you turn a profit. If I can get a better rate of return investing in Blizzard and its parent company, I have no reason to invest in your game. I have no idea which MMO company has the best rate of return (Three Rings?), but that is your investors’ target. This is why games shut down even when they are still showing a profit: you can use those resources elsewhere and make more money. Or not, because there are a lot of short-sighted executives out there, but the cynics are consistently beating the gamers who keep hoping the next game will be the New New Thing. An investor may turn his nose up at what a gamer considers a win.

And that is limiting the view to the industry. Anyone care to guess what the return on investment is for a good casual game? How many non-WoW MMOs out-sold the latest Nancy Drew adventure this holiday season?

: Zubon

Update: will it help us avoid distractions if I rephrase as “ROI * risk” and/or “ROI over time”?

16 thoughts on “From a Business Perspective”

  1. I wouldn’t go so far as to say it is “limiting the view” at all.

    In fact, a game like WoW becoming a pop-culture reference and selling millions of copies is nothing but GOOD for the industry.

    Quality HAS gone up, and games run better/look better than they have in 10 years. The last thing I would ever say is that quality, look and fun is at a all time low. (Not saying you are saying that, but it is easy to go that route for some bloggers/podcasters.)

    We are simply living in the MMO equivalent of a “Post-Nirvana Rock n Roll world.”

    Look back at when they became HUGE. WoW is the Nirvana of gaming. To this DAY people are imitating the phrasing and style of Kurt Cobain, seriously. I am not some fanboy…but look at the Creeds, bands that took creative cues from Nirvana, Pearl Jam and all those bands and melded it into a top-40 soccer mom’s dream.

    They are STILL doing it, 18 years later.

    Games will continue to copy WoW, and just like in music, the underground indies will struggle for some attention. But there WILL be winners, and the process, if anything, helps weed out the crap.

    Soon, another game/mmo (probably made from Blizzard) will come out and re assign what is popular in MMO’s. Then that will be copied to a point. It is a cycle, and is normal and healthy.

    Trust me, as soon as your favorite MMO becomes the smash hit you always dreamed of, you will be the first one saying “But I liked it back when it was INDIE!” lol

  2. I can’t understand why anyone would trust a gamer’s opinion on what makes a fun game, that just sounds fucking stupid…

    I love you space lady, buhbye

  3. Beau, wrong reading of “limiting.” “Limiting the current discussion to…” One could also say that video games are not worth investing in unless they have a competitive return on investment to other industries. Narrow view: MMO industry. Slightly wider: gaming industry. Medium: software development. Expand to electronics, tech sector, and the whole economy.

    OPM: “You don’t care if they manufacture wire and cable, fried chicken, or grow tangerines! You wanna make money!”

  4. Ahh the wonders of publicly traded corporations.

    Gone are the days when making a reasonable profit was good enough, now it’s all about being in the upper echelons of market share. One big popularity contest.

    Thank god at least some of these companies still have people that are passionate about the games they make, otherwise this purely business perspective would be even more depressing.

    @Beau: Quality is subjective in this case though. Technology-wise, I’d agree with you. Gameplay-wise, I’d say a bit stagnated which is disappointing for a genre that’s still fairly young. My expectations for this genre have not been met.

  5. This is why games shut down even when they are still showing a profit: you can use those resources elsewhere and make more money.

    More than that, you can use the same users elsewhere. Most players can’t and won’t support multiple MMOs. A rare few can, and you’ll see a lot of them on the forums, but most users take one MMO and stick with it. If you leave them an MMO that doesn’t have a lot of people, that’s a problem.

    MMOs follow the power law, big time. An MMO with a lot of people has a lot of word of mouth, builds content with several times the money that several times the number of users can enjoy, and eventually can even afford main-stream advertising. Tabula Rasa was never going to get ads on cable television, World of Warcraft did. The name Auto Assault popped up between niche gamers, but not much else, while World of Warcraft has entered the general modern vocabulary and collective awareness. WoW even shows up as TV punchlines or news stories [u]without paying[/u]. City of Heroes does [i]amazingly[/i] at building new content with a very small crew, but it’s nothing compared to what they could have done with several times that in income.

    The only group that doesn’t focus on this belief is SOE, and that’s because SOE knows they can’t hold the market forever, and they’re better off hurting the other companies than trying to win the market for themselves.

  6. SOE knows they can’t hold the market forever, and they’re better off hurting the other companies than trying to win the market for themselves.

    In so many words, SOE is the Ralph Nader of the MMO world..


    As to gattsuru’s comments, it makes perfect sense. Use NCSoft as our example. They will try to force this group of players from Tabula Rasa to their other games…or better yet, to their NEW game (Aion), and try to grab that player base, and hopefully some of the Guild Wars players as well (because the updates and expansions are pretty much done for THAT game) and in the process, if the players do NOT like Fantasy, well lookie here at the Super Hero MMO.

    Will all of this matter once they get their pants sued off though is the big question.

  7. Investors are trouble for pretty much any industry. They demand growth, which works at cross purposes with sustainable businesses. The better the “growth”, the more likely it’s a firework scenario (all flash, no substance, short life span), or a Ponzi-esque scam that plays well for a bit, then crashes and burns anywho. *coughBernieMadoffcough*

    As long as MMOs build from “financing” rather than from self-owned capital (labor of love?), they will be slaves to their investors. As such, we’ll continue to see iterations of tired old ideas, and more “MMOs of the month” fall as people go back to WoW.

  8. So…

    Unless my company provides investors the best ROI in the business, my game is a failure? or at least not successful?

    If started a a nice little retail business that turns a healthy profit, I automatically fail because Walmart exists?

    I think you need to think about that some more.

  9. blachawk, you are close to the point. But if you are intentionally seeking a sub-optimal ROI, that is more of a hobby than an investment strategy.

  10. At the same time, swinging for the fences every time isn’t always a long term viable strategy. Build to succeed, yes. Building for explosive growth is playing with fire.

    High risk, high reward only looks pretty because of the successes. There are far more failures.

  11. Tesh, you have twice commented that unsustainable growth is unsustainable. Does that point expand to more than “don’t be stupid”?

  12. Problem is, Walmart is not the best ROI, but rather the safest. Before the market got completely screwy, you had the slow but steady DOW, and you had NASDAQ. If you are planning a 30yr nest egg, you go DOW or mutual funds. If you want to take a shot, or think you can do better than most, you go NASDAQ and stocks.

    A safe ROI is almost never the highest ROI, and that rule will continue, whether we apply it to retail or MMOs. The next MMO from Bliz might once again print money, but it’s not a sure thing, or have we fogotten the ‘sure things’ like Sims Online and SWG? How did those money trees work out?

    I’m fairly sure the investors of CCP are enjoying their returns, and those checking the stock price of Activision might be getting a bit worried.

  13. It all boils down to “money will flow to where it can best be used.” and I guess I have to clarity best be used means provides the most return. that is why investors will liquidate and pull out or sell a company if they can get a better return somewhere else. Because by its very nature a company is risky. there is no real “safe” investment when you’re dealing with owning companies, just some are less risky. So if a company can only offer a 4% return on investment, well I’d be better off buying bonds for the same return but less risk. It’s not about “swinging for the fences” it’s about swinging farther than the less risky investment swings. (Like the old adage about escaping predators you only have to be faster than the other guy)

    Think about movies. The same forces are at work. How do you explain art movies then? Huge investments are made in blockbusters, but there are still good movies made for lower amounts of money, plus costs have lowered dramatically to make movies.

    If movie making stayed a “hobby industry” where only people who “loved” it invested and were satisfied with a little money, we wouldnt have movie theaters everywhere in every small town, we wouldn’t have easy access to any movie you want from the wires and satellites, and we wouldn’t have as many art movies available to watch in so many theaters. The amount of money poured into the movie industry on mainstream movies is what enables the art movies to flourish and find people willing to lose money for art’s sake.

    The same will happen with games. For all the despressing feelings people have towards mainstream games, everyone still says independent games are full of innovation. The thing is, those games need to find new investors, the investors who have been proppelling the industry foward the past 30 years are probably not the ones that will propell the outside-the-mainstream game industry. and basically that is what it will become like every other entertainment industry – mainstream and outside. But that has been good for every other industry, and will be good for games.

  14. Zubon, the point is that investors aren’t the only way to fund a company. If you build a business around catering to investors, you are building with a growth>all mentality, because you have to pay back the interest, rather than building to stay afloat by keeping your people and customers happy.

    Investors burn up the things they invest in, in hopes of profiting before the inevitable crash. That’s the nature of unsustainable (exponential, interest-based) growth, but the simple math often gets lost in the starry eyed ROI percentage talk.

    Smaller scale businesses, built around creating good products at fair prices, answering only to their employees and customers, with sustainable business practices (whether growth or merely a plateau) will always create different and interesting products. Stardock has at least a flavor of that mentality.

    It’s possible for a business to be successful without perpetual growth. Investors, on the other hand, demand perpetual growth.

    We’ll get good games from devs catering to either group, but those in companies who are beholden to investors will always have an impetus to do the least amount of work for the greatest return, while those who are beholden to their employees and customers will more easily embrace innovation and labors of love.

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