Massively Multiplayer Online Games Industry: A Review and Comparison
From Middleware to Publishing
By
Almuntaser Alhindawi
Javed Rafiq
Sim Boon Seong
2007
A Management project presented in part consideration for the degree of "General and Financial MBA".
CONFIDENTIALITY STATEMENT
This project has been agreed as confidential between the students, university and sponsoring organisation. This agreement runs for five years from September, 14 th , 2007.
ii Acknowledgements
We would like to acknowledge Monumental Games management for giving us this opportunity to gain an insight of this interesting industry.
Special thanks for Sarah Davis, Thomas Chesney and the University of Nottingham Business School MBA office personnel (Elaine, Kathleen and Christinne) for their assistance and support throughout this project.
We would also like to thank our families for their constant support and patience; - Abdula Alhindawi - Fatima Alhindawi - Shatha Bilbeisi - Michelle Law Seow Cha - Sim Hock Soon - Yow Lee Yong - Mohamed Rafiq - Salma Rafiq - Shama Hamid
Last but not least, our project supervisor Duncan Shaw for his support and guidance throughout the duration of this management project.
i Contents
Executive Summary iv Terms and Definition vi 1.0 Introduction 1 1.1 Methodology 1 1.1.1 Primary Data Capture 1 1.1.2 Secondary Data Capture 2 1.2 Literature Review 4 1.2.1 Introduction 4 1.2.2 Competitive Advantage 15 1.2.3 Business Model 22 1.2.4 Strategic Market Planning Process 27 1.2.5 Value Net 32
2.0 Middleware Industry 42 2.1 Industry Overview 42 2.2 Macro Analysis 43 2.2.1 Political factor 43 2.2.2 Economic factor 45 2.2.3 Social factor 50 2.2.4 Technological factor 51 2.2.5 Legal factor 53 2.3 Industry Analysis 54 2.4 Competitors Analysis 63 2.4.1 Direct Competitors 63 2.4.2 Indirect Competitors 78 2.4.3 Technical Specification Overview 88 2.4.4 Licensing Overview 104 2.5 Middleware Industry Summary and Future 109
ii 2.6 Summary 111
3.0 Monumental Games Limited 115 3.1 Company Overview 115 3.2 Internal Environment Analysis 123 3.3 Summary 125
4.0 Massively Multiplayer Online Gaming Industry 128 4.1 Industry Overview 128 4.2 Macro Analysis 133 4.2.1 Political factors 133 4.2.2 Economic factors 135 4.2.3 Social factors 137 4.2.4 Technological factors 140 4.3 Top 20 Publishers 142 4.4 Chinese and Korean Publisher 152 4.5 MMOG Publishing Industry Future 165 4.6 Summary 168
5.0 Conclusion 173 References 177 Appendix 189
iii Executive Summary
Our team was engaged with Monumental Games to undertake an internship project to study and analyse the Massively Multiplayer Online Games industry (Middleware, game development and publishing industry)
The core focus of this project was the middleware industry in which Monumental Games is a key player in the market.
As a result of our work over this project, we gained an overall comprehension about the relationship between the three industries operating within this project’s research criteria.
A key finding during this project was the very close relationship between these industries in which one factor in the publishing industry would effect and filter down to the other two industries and vice-versa although we believe that the factor in the publishing industry have greater weight.
We have noted the trend within the publishing industry of constant and periodic acquisitions of game developers and studios.
We believe that one of the most important factors in the online gaming market is the demographics of gamers as hardcore, moderate and casual gamers (split based on time and efforts put in playing).
The hard-core gamers are the most important layer and should be targeted and attracted when new games are developed and launched through innovation in the game concepts, theme, quality and genre (i.e. hybrid genres).
iv
The future of MMO games – according to the forecasts – looks good and potential growth is expected which is good news for the MMOG publishers, this means that the MMOG developers would have a portion of the potential profits and the same applies to the middleware developers through licensing their products.
This is particularly good for Monumental Games as it leads to growth in both its businesses as a game developer and a middleware provider.
With a young, fast growing and changing industry, the middleware developers need to keep up with the constant changes whether to meet the constant changes in products’ and services’ demands of the industry or to predict the future trends and uses of the current products.
v Terms and definitions
Term Definition
2D 2-Dimensional
3D 3- Dimensional
AI Artificial Intelligence
BOD Board of Directors
CEO Chief Executive Officer
CFO Chief Financial Officer
CTO Chief Technical Officer
EBIT Earnings Before Interest & Tax
EPS Earnings Per Share
EVA Economic Value Added
FPS First Person Shooter
GAAP Generally Accepted Accounting Principles
GDP Gross Domestic Product
IP Intellectual Property
IPO Initial Public Offering
IT Information Technology
MMOG Massively Multiplayer Online Game
MUD Multi User Dungeon
MTS Monumental Technological Suite
PEST Political, Economical, Social and Technological
ROE Return on Equity
ROI Return on Investment
vi Term Definition
RPG Role Playing Game
RTS Real Time Strategy
SWOT Strengths, Weaknesses, Opportunities and Threats
VCS Value Creating System
WACC Weighted Average Cost of Capital
Specific terms used in the context of this report.
Term Definition
Middleware A technological platform or solution used to develop a Massively Multiplayer Online Game
Specialised Modules A specialist program or solution provided by third party developers for a specific purpose (e.g. SpeedTree)
Casual Games A massively multiplayer online game that does not feature a persistent world
vii viii Chapter 1 – Introduction
The primary objective of this MBA management project is to assist Monumental Games Limited to enhance its understanding of the industry and market in which the company operates in.
1.1. Methodology
The methodology used during this project relied on extensive market and industry research. We have determined the theoretical concepts and frameworks to be applied on the gathered data and information that would help gain an understanding of the market forces and elements in order to analyse the current position of the company in comparison to competitors.
The research methodology applied in this report employs both primary and secondary data capture techniques. In addition, due to the nature of the engagement, our research and analysis was basically qualitative data and information analysis.
1.1.1. Primary Data Capture
This type of research focused on gathering data and information directly from the source of information using:
- Interviews with Monumental Games staff.
- A Questionnaire was developed and sent to competitors of Monumental Games in the middleware industry.
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- Telephonic interviews with business development and marketing personal of Monumental Games competitors in the middleware industry.
1.1.2. Secondary Data Capture
In this type of research, we gathered information from third parties in the form of:
- Industry reports. - Internet research. - Competitors web sites. - Industry related publications - Journals
During our research for relevant data and information we had the following limitations that limited obtaining the latest industry and market information:
1- The relative age of the market and industry (MMOG Middleware, development and publishing) is young and sufficient validated information was difficult to procure.
2- Industry and market analysis reports performed by known and reliable sources such as Screen Digest and Themis Group were available for fees ranging £1500 - £3000 which was not affordable by the research team.
3- We contacted the previously mentioned industry analysts asking to provide us with their reports for academic use which was rejected.
2
4- Other industry and market analysis reports (i.e. Keynote and Datamonitor) were either old – as the latest Keynote report we could find was a report for the year 2002 – or none existant.
5- We were able to obtain some relevant information from competitor websites; however as the middleware competitors are private companies, there was severe limitation on the publicly published information.
6- To overcome the previous limitation, we had devised a questionnaire that was sent via e-mail in addition to telephonic interviews. The questionnaire return rate (both sent and through telephonic interviews) was 30% of direct middleware competitors (3 out of 9 companies). In a particular case, a competitor stated over the telephone “it is the policy of the company not to respond to such e-mails, questions and interviews”.
Upon completion of data and information gathering, we started performing analysis according to the selected frameworks that included Porter’s 5 forces, PEST analysis, SWOT analysis, technical specifications and competitor comparisons.
3
1.2. Literature Review
1.2.1. Introduction In order to achieve this objective, we started off by performing literature reviews of the concepts and frameworks that would assist us in understanding the industry in which the company operates in and in addition to provide us with guidelines related to our research methodology and analysis of the gathered data and information.
It was integral to understand the frameworks in use and the interaction between them in order to achieve a proper flow of thoughts and perform a comprehensive understanding and analysis of the research data.
The list of the concepts and frameworks used in this report together with its explanation and references are listed in table 1.1.
4 Table 1.1: Concepts and Frameworks Concept Description Reference
1.0 Competitive A condition that enables a firm to have an edge over its Porter M (1985) ‘Competitive advantage’ advantage competitors either in efficiency in operations or Free Press, New York. product/service quality which results in higher profits for the firm.
1.1 SWOT - A SWOT analysis is intended to identify the opportunities Dobson P, Starkey K, Richards J (2004) analysis and threats facing a firm and how well it is positioned to ‘Strategic Management: Issues and meet these factors relative to other competitors. cases’ Blackwell Publishing, Cornwall
- Stands for Strengths, Weaknesses, Opportunities and Threats.
- Strengths and Weaknesses are factors internal to the firm and are considered relative to its competitors.
- Opportunities and Threats are factors external to the firm (meaning the industry the firm is involved in) and considered relevant to all firms in that industry.
5 Table 1.1: Concepts and Frameworks (continued)
Concept Description Reference
1.2 Porter’s 5 - The 5 Forces analysis is intended to identify the intensity Porter M (1979) ‘How Competitive Forces Forces analysis of a firm’s competitive environment. Shape Strategy’ Harvard Business Review March-April pg 137-145 - The competitive environment is made of five different ‘forces’; supplier power, buyer power, threat of new entrants, threat of substitutes and the degree of competition amongst rivals.
1.3 PEST analysis - A PEST analysis is an analysis of the external Dobson P, Starkey K, Richards J (2004) environment factors that affects all firms in that particular ‘Strategic Management: Issues and industry. cases’ Blackwell Publishing, Cornwall
- PEST stands for Political, Economic, Social and Technological.
6 Table 1.1: Concepts and Frameworks (continued)
Concept Description Reference
1.4 Porter’s Three separate strategies for a firm to gain competitive Porter M (1985) ‘Competitive advantage’ generic strategies advantage recommended by Michael Porter. Free Press, New York.
- The three strategies are cost leadership, differentiaton and a focus strategy.
- Cost leadership strategy focuses on being the lowest cost supplier and thus achieving profitability from an above average price-cost margin.
- A differentiator focuses on differentiating its products/services from its rivals and charging a higher price for it.
- A focus strategy concentrates on a particular segment of the market and applying one the previous strategies.
7
Concept Description Reference
2.0 Business - A framework for modelling how a business works and earn Afuah A, Tucci CL (2001) ‘Internet model money Business Models and Strategies: Text and Cases’ McGraw-Hill, Singapore - The framework includes all relevant parties in a business (e.g. suppliers, customers, the firm itself etc), the working Alves TR, Roque L (2003) ‘Using value relationships and the roles they play with each party, nets to map emerging business models in business activities, the sources of revenue and other massively multiplayer online games’ relevant components that is in a business. Businessmodeldesign.com
- The revenue model of the business is also described in Amitt R, Zott C (2001) ‘Value creation in the framework. e-business’ Strategic Management Journal Vol 22 pg 493-520
Hedman J, Kalling T (2003) ‘The business model concept: theoretical underpinnings and empirical illustrations’ European Journal of Information Systems Vol 12, pg 49-59
Osterwalder A, Pigneur Y (2002) ‘An e- business Model Ontology for Modelling e- Business’ 15 th Bled Electronic Commerce Conference, Bled Timmers P (1998) ‘Business models for electronic markets’ Electronic Market Vol 8 Issue 2 pg 2-8
8
Concept Description Reference
2.1 Industrial - Industrial Organisation (IO) is a theory that claims that Porter M (1985) ‘Competitive advantage: Organisation factors external to the firm such as competitors, suppliers Creating and sustaining superior and customers dictate what a firm’s strategy is. performance’ Free Press, New York.
- These factors will determine how a firm will position and price (the products and services) itself with respect to its competitors.
2.2 Resource - The resource based view (RBV) states that that a firm Barney J (1991) ‘Firm resources and based view should concentrate on its internal resources and sustained competitive advantage’ Journal capabilities to gain a competitive edge over its rivals. of management Vol 17 pg 99-120
- These internal resources and capabilities needs to be Porter M (1985) ‘Competitive advantage: valuable, rare and costly to imitate to sustain the Creating and sustaining superior competitive edge. performance’ Free Press, New York.
9
Concept Description Reference
2.3 Strategy - Strategy process emphasises the process in which a firm Whittington R (2000) ‘What is strategy – process formulates its strategy. and does it matter?’ International Thomson, London. - Factors that influence the process includes time, managerial cognition (the limited amount of information that Oliver C (1997) ‘Sustainable competitive a manager is able to process at a single time) and cultural advantage: combining institutional and constraints. resource based views’ Strategic Management Journal Vol 18 pg 697-813 - This theory takes into account that the situation in the industry changes over time and firms needs to constantly be aware and evolve together with it.
2.4 Customers A person or organisation that has the intention or the ability to purchase the products or services from a firm.
2.5 Suppliers A person or organisation that supplies the services or materials so that a firm itself can make its own products/services.
2.6 Offering - The products and services that a firm produces or made available for purchase by customers. - It also includes how the products and services are delivered to customers and how much.
10
Concept Description Reference
2.7 Revenue - The way a firm generates revenue from its business model processes and activities.
- It also shows where and how the revenue is generated and by whom.
2.8 Organisation This is about the firm itself; the way it does business, the organisation, human resources and the management.
3.0 Strategic - A strategic marketing planning process is a process Best (2005) ‘Market Based Management: Marketing whereby a firm strategically produces a marketing plan. 4th Edition’ Pearson Prentice Hall Planning Process - A marketing plan is needed to enhance a firm’s market share, position growth of sales and ultimately the profitability.
11
Concept Description Reference
3.1 Ansoff’s - A matrix that is intended to denote growth strategies for a Ansoff IH (1968) ‘Corporate Strategy: Growth Matrix firm’s products/services. An analytical approach to business policy for growth and expansion’ Mc - The matrix has four strategies depending on the status of Graw-Hill, New York. two factors, product and market.
- The four strategies are Market Penetration, New Product Development, Market Development and Diversification.
4.0 Value net - Value is what a customer is willing to pay for a firm’s Parolini Cinzia, 1999 ‘The Value Net: A methodology product and services. tool of competitive advantage’ John Wiley & Sons, West Sussex. - Value net is a strategic tool used to analyse a set of activities (or value creation system) that creates value for customers. It creates a visual map of these activities and shows the relationship with each other.
- A value creation system are activities carried out by using a firms resources (both tangible and intangible) linked by flows of information, material and financial components to create value.
- The value net brings fresh and holistic perspective to a firm on how it creates value for customers.
12
Concept Description Reference
4.1 Porter’s Value - The value chain is intended to be used as a framework to Dobson P, Starkey K, Richards J (2004) Chain analyse the internal activities of a firm to discover where ‘Strategic Management: Issues and and how a firm adds value. cases’ Blackwell Publishing, Cornwall
- The value of each activity adds up to increase the margin Porter M (1985) ‘Competitive advantage: (i.e. profitability of a firm). Creating and sustaining superior performance’ Free Press, New York. - The value chain is made of primary and support activities.
4.2 Porter’s Value - The values system is a stream of activities that is made up Porter M (1985) ‘Competitive advantage: System from individual value chains. Creating and sustaining superior performance’ Free Press, New York. - The value chains starts upstream from the supplier until it reaches downstream to the customer.
- Value is passed through the system from the supplier until the customer.
13 We have chosen to study the Competitive Advantage concept to understand and apply its content of concepts and frameworks to achieve and sustain a competitive position for the company that would enhance and sustain its competitiveness in a highly competitive and fast growing market. Concepts and frameworks such as SWOT analysis, Porter’s 5 Forces, PEST analysis, Nature and Environment analysis, Segmentation and Positioning and Competitive strategies are basic and essential to our analysis.
From there we go forward for a study of the Business Model (BM) concept which starts off with a theoretical background review on the BM field. From the review, we plan to locate and use a BM framework that integrates strategic management theory that can advise on gaining a sustainable competitive advantage.
We then move on to the Strategic Marketing Planning Process that requires Monumental Games to employ the analysis results of the previous frameworks in order to generate a marketing plan based on the company’s current and anticipated Business Performance – including its market share, market position and profitability of its operations, the attractiveness of the industry and market in which it operates in – including market forces, competitive intensity and market access – and the Competitive Advantage analysis results previously performed.
At the end of the day, every organisation operates to generate additional value – whether for shareholders or stakeholders – and it needs a framework to properly value the company. This will be shown through the flow of the previous concepts and frameworks leading us to the Value Net framework in which the results of all the previous frameworks are consolidated to achieve a value creation system with a visual representation of flows within the company and industry and can be used as a strategic tool.
14 1.2.2. Competitive Advantage
The concept of competitive advantage is essential for the analytical process we needed to perform to reach to an understanding of the competitive position of the company on which we based our conclusion and recommendation of how can the company make a strategic choice to be more profitable if possible.
In this concept, we use several frameworks and analysis methods to perform an analysis of the company, the market, the industry and the operational environment. It is empirical to understand the different levels of environment the company operates in to be able to perform an appropriate analysis.
Any establishment operates (is positioned) within a general, competitive and internal environment.
15 Figure 1.1: Illustration of the environment in which an organisation operate in
General Environment (PEST + Legal)
Competitive Environment Regulatory Political components Supplier components Product components components The Organisation Position Internal Environment Organisation Marketing Rivalry Personal components Production Labour components Economic Technological components components Buyers components
Social components
Source: Dobson et al 2003 pp 19
The general environment includes political, economical, social, technological, regulatory and other factors. Political factors include (for example) governmental & regional stability, tax policies and government spending policies. Economical factors include disposable income by the customers, interest rates, exchange rates, business cycle and economy growth rates. Social factors include population demographics, income distribution, education levels and lifestyle changes. Technological factors include new
16 discoveries or developments whether in the firms industry or in a related industry, speed of technology transfer and rates of obsolescence.
The competitive environment includes the factors of suppliers, buyers, rivalry, competitors and the product itself. Rivalry include factors such as industry growth rate, number of organisations, fixed costs/value added, products differences, diversity of competitors and information complexity. Competitors factor include brand identity, capital requirements and access to distribution channels. Product factors include value for money perception, relative price performance of substitutes and switching costs for the customer. Buyers factor include bargaining power, buyer volume and price sensitivity. Supplier factors include supplier power, supplier concentration and importance of volume to the suppliers.
The internal environment includes the organisational structure of the company itself, marketing, business development, personal and production factors.
To understand the potentials for a company, we need to understand its current position in the market/industry, assess the environments surrounding the establishment and understand where the company wishes to be in a certain period of time. This can be performed by applying the following six step procedure for analysing the external and internal environment to identify the company’s strategic position which undertakes some well known, tradition yet basic analytical processes:
1- Scan the environment (PEST analysis) Through a general audit of environmental influences, identify which of the different sorts of general environment factors have influenced the past performance and development, the current factors affecting the environment and considerations of which will remain an effect in the future.
17 The scan requires two questions to be asked; what factors in the general wider environment are affecting the firm? and, which of these factors are the most important either at present or in the future?
2- Assess nature of environment (Simple/complex, Static/Dynamic). Consider the nature of an organisation’s environment in terms of certainty as modern organisations are increasingly finding that they are facing both a dynamic and complex environments. a) simple/complex, b) static/dynamic.
3- Identify key environment forces (Porter’s 5 Forces analysis). Structural analysis to identify key forces operating within the competitive environment.
4- Identify competitive position (Segmentation & Positioning). Analyse the organisation’s position relative to its competitors (resources and/or customers) using one or more of the commonly used frameworks including the life cycle model, strategic group analysis and market share analysis.
5- Identify Strengths and Weaknesses (SWOT analysis) Identify the strengths and weaknesses from internal environment of the organisation.
6- Identify key Opportunities and Threats (SWOT analysis) Identify the Opportunities and Threats from the external environment of the organisation.
There is no magical formula if used allows the companies to gain long-term superior performance, and even if it exists it would be worthless as everyone
18 will use the same standard solution and the effect would be diminished and therefore the need to be unique and distinguished arises.
As the objective of competitive advantage is to achieve and maintain superior gains compared to rival, selecting and following a well defined competitive strategy would be needed by the firm. An essential aspect to competitive advantage is that a viable number of buyers end up with the perception of superior value gaining from their purchases.
This superior value can be perceived by offering a standard quality product at a price lower than the competitors or a product with higher quality attributes which then can be charged a higher price to obtain. Porter’s three generic competitive strategies are illustrated in figure 1.2
Figure 1.2: Porter’s Generic Competitive Strategies
Source: Porter, 1985 (Dobson et al 2004, pg 53)
19 1- Cost Leadership Strategy: which focuses on being the lowest cost supplier and thus achieving profitability from an above average price-cost margin
The firm should seek superior co-ordination across linkages in the value chain while keeping cost to a minimum in each activity. This strategy is likely to succeed when demand is price sensitive and firms in the industry provide essential and standard products.
Risks associated with the strategy include the market shift when the customers become less price sensitive, technological changes that allows better quality for lower costs and a real strategic success occurs when the implementing firm is the market leader which causes additional stress on rivalry.
2- Product Differentiation Strategy: which focuses on differentiating the product from the products forwarded by the rivals and charging a higher price than the rivals.
Key elements in this strategy are the buyers ability to perceive the differences, the buyers are willing to relinquish the extra cost for the product and the rivals find it difficult to match the produced quality.
Risks associated with the strategy include the buyer power to influence the prices or requiring extra features over time, rival may be able to imitate/copy the product attributes and the continuous product innovation is costly.
20 3- Focus Strategy: which focuses on concentrating on a particular segment of the market and then apply one of the previous strategies.
Focusing is particularly attractive when there are distinctly different market segments no other rival is attempting to penetrate or specialize in, the firm does not have enough resources to be spread over the entire market and market segment differ widely in size, growth rate, profitability and intensity of rivalry.
Risks associated with this strategy include the ability of broad ranged competitors to find ways to match the focused firm, unfavourable shifts in the buyer preferences may leave the firm without a viable market and the competitors might find a sub- segment to target and focus on.
In addition to Porter’s three generic strategies, Mintzberg families of generic strategies include:
1- Locating the core business (Galbraith: Centre of Gravity) 2- Distinguishing the core business (Porter Value Chain and Generic Strategies) 3- Elaborating the core Business
21 Figure 1.3: Ansoff’s Growth Matrix
Source: Ansoff IH (1968) 4- Extending the core business (vertically and horizontally) 5- Reconceiving the core business (Leavitt’s marketing myopia)
1.2.3. Business Model
What does a business model mean? Essentially the common understanding of the term is a framework/description of how a business makes profit by creating more value for customer than its rivals. It can also be used to describe the key components of a business. The term business model was not often used until the advent of the internet boom in the 1990’s. During that period, internet entrepreneurs often used the term when selling their business ideas or plans to investors and banks. It was the ‘hot’ word at that time.
In academic literature, the term was more often used in the field of e-business and entrepreneurial research than others. However, the concept has surfaced in the past in strategic and management theories. One of the earlier concepts was proposed by Porter (1985) which was his three generic strategies. The option of a low cost leadership, differentiator or a focus strategy is essentially
22 at its core, a ‘business model’. McGrath & MacMillan (2000) and Schumpeter (1934; 1950) have describe key components and processes which all could be part of the business model concept (Hedman & Kalling, 2003).
So what is the official definition of the business model? So far there have been two slightly different views of the definition. One of the earliest definition and most widely cited is by Timmers (1998, p.4) who defines it as ‘An architecture for the products, services and information flows, including a description of the various business activities and their roles; a description of the potential benefits for the various business actors; and a description of the sources of revenue’. The view of the business model as an architecture of business components and its processes is shared by Weill and Vitale (2001) who defines it is as ‘A description of the roles and relationships among a firm’s consumers, customers, allies and suppliers that identifies the major flows of product, information and money and the major benefit to participants’.
Peterovic et al. (2001) and Osterwalder & Pigneur (2002) however, share a slightly different perspective. They see the business model as a different component from the business processes but state that they are interlinked. Osterwalder & Pigneur (2001) define it as a conceptual and architectural implementation of a business strategy and as a foundation for the implementation of business processes.
23 Figure 1.4: Business logic triangle
Source: Osterwalder & Pigneur, 2001
Although they share different views, what was agreed on was that a business model still needs to have a strategy for the implementation process.
Most of the earlier research on business models has been concentrated in the field of Information System (IS) and e-businesses. Hedman & Kalling (2003) grouped the research into two complimentary streams. The first stream aims to describe and define the key components of e-business models. Some of the papers in this stream are by Afuah & Tucci, 2001; Amitt & Zott, 2001; Osterwalder & Pigneur, 2002. The second stream aims to describe specific e- business models. Timmers (1998) specified 11 different models; Applegate (2001) classified 22 models while Weill & Vitale (2001) defines 8 models.
Pateli & Giaglis (2003) also analyzed the bulk of main e-business research. They came up with a framework to analyse business models which was constructed by understanding the patterns of 22 most cited papers (from 1998 to 2002) in the business model literature. The framework is based on six research sub-domains. 1) Definitions 2) Components 3) Taxonomies
24 4) Representations 5) Change methodologies 6) Evaluation Models
They further elaborated the sub-domains into two aspects, integration (the degree to which each sub-domain builds upon research conducted in other domains) and timeliness (the degree of maturity of the sub-domain).
Figure 1.5: framework for structuring business model research sub-domains
Source: Pateli & Giaglis, 2003
Their analysis shows that the business model field has matured past the initial stages of definition towards in depth analysis. Furthermore they also found the research of business models during that period has little link to strategic and management theories and contends it need this link for business model research to be recognized and independent of e-businesses.
Coincidently, Hedman & Kalling (2003) in that same year produced a business model framework that integrated with traditional theories of industrial organisation, resource base view and strategy process. What they came up
25 with is a generic framework that incorporates seven business components, namely (1) customers, (2) competitors, (3) offering, (4) activities and organisation, (5) resources, (6) supplier and (7) a longitudinal process component.
Figure 1.6: The components of the business model
Source: Hedman & Kalling, 2003
The framework shows how the different components internal as well as external to the firm interact with one another to form the business model. One unique perspective in the framework is the way it handle the dynamics of changes over time and cognition with the longitudinal process component. Hedman and Kalling state that the business model has to be managed and developed over time which is part of the strategy process.
26 Another novel approach to business models was by Alves & Roque (2005) who used the Value Net methodology (Parolini, 1999). They used the value net constructs to visually map out the value creation system of a business model; in their case MMOGs.
Other than this work in 2005, there has been little progress of note in the field of business model research since 2003. As a result, the concept of business models is still very much tied to e-businesses and not into mainstream management. There needs to be more research to integrate strategic theories to business models for it to be more recognized in the field.
1.2.4. Strategic Marketing Planning Process Each product essentially contributes to the performance of the business. Depending on the company’s or products’ market share and performance, the firm would either pump in extra funds to defend its position in the market or possibly grow that share or reduce the invested funds if it chooses to shift its focus to product(s) or market(s) in which it has or can achieve a stronger competitive position to increase its profit margins with the currently available – and by nature scarce – resources.
As resources are limited, the firm needs to think strategically and therefore a strategic market plan is needed to be generated and implemented to set the directions and guidelines for resources allocation to achieve the ultimate goal of strengthening its market share, position, growth of sales and accordingly enhance the profit performance as bottom line results and its intangible assets.
The generation of a strategic market plan is not an easy task. Different firms, markets and industries require different plans according to their own
27 requirements, current and future status, goals to be achieved and the choice of strategies to be implemented. The strategic marketing planning process as outlined in figure 1.7 has several steps to be performed.
Figure 1.7: Strategic Market Planning Process
Marketing Mix Strategy and
Performance Plan
Portfolio Analysis and
Strategic Market Plan
Business Market Competitive Performance Attractiveness Advantage
Share Position Market Forces Differentiation
Sales Growth Competitive Intensity Cost
Profitability Market Access Marketing Source: Best 2005, pg 333
Strategic Marketing Planning Process steps are:
1- Decide on the company’s desired business performance outcomes. The firm should – before performing any further steps – determine what are its goals, objectives and the outcomes of operating in a certain industry or market. This will allow the firm to have the corner stone of its further analysis and planning which should be revolved around these preset objectives. These goals and objectives should
28 revolve around the desired market share position, sales growth and profitability of the business.
2- Determine the market attractiveness. The firm should carefully understand, examine and analyse how attractive the market and industry are through three dimensions; market forces, competitive intensity and market access.
Market forces include the market size, growth rate and buyer power aspects. Competitive intensity includes the number of competitors, price rivalry and ease of entry aspects. Market access includes customer familiarity, channel access and sales requirements aspects.
3- Identify sources of competitive advantage. This component was previously discussed in more details.
4- Understand the competition. In his manual, General Sun Tzu presents competitive strategy as a process of developing a knowledge advantage and then attacking in a way that is less noticed. That meant that in a less confrontational approach, better results can be achieved without the significant losses in a direct open confrontation, this applies to business competition.
In any competitive environment, knowledge is the key source of achieving a competitive advantage in which partial knowledge would keep the firm in the dark and would only be able to adopt reactive strategies as it will have no knowledge of the surrounding environment until an action is taken by the competition, while having
29 adequate knowledge would result in proactive strategies which will be followed by the competitors later and after the firm has achieved the early profits and established its name as an innovator.
Figure 1.8 illustrates the competitive strategies based on the level of knowledge the firm has.
Figure 1.8: Competitive strategies based on knowledge
Source: Best 2005, pp170
5- Determine business performance The business performance of a company is affected with the strategic market plan is chooses. Whether offensive or defensive strategies are decided by the firm, it needs to be budgeted and weighted before the decision is made. Offensive strategies are growth oriented which are likely to occur in attractive markets (e,g, Dell, Amazon) while defensive strategies are designed to protect the market position and generate large short-term cash flows.
30
Figure 1.9: Determine Business Performance
Source: Best 2005 pp342
6- Develop portfolio strategy
Figure 1.10 Strategy with respect to market attractiveness and competitive advantage
Source: Best 2005 pg 338
31 The figure above illustrates various strategic market plans according to the relation between the competitive advantage and market attractiveness.
7- Develop marketing mix strategy and performance plan. According to the results of research and analysis performed for the previous steps, it becomes easier for the firm to determine which marketing strategies it needs to employ in order to achieve its set objectives and goals.
The use of Ansoff’s Matrix, SWOT analysis and TOWS Matrix along other analytical tools (mentioned previously in the competitive advantage section) would help the company in its analysis and decisions.
1.2.5. Value Net The value net methodology was introduced by Parolini (1999) as a strategic tool to analyse the value creation/consuming system of a business. The methodology is based on value-creating systems (VCS) as the fundamental object of investigation. A VCS is defined as: - As a set of activities creating value for customers; - These activities are carried out using sets of human, tangible and intangible resources; - They are linked by flows of material, information, financial resources and influence and influence relationships; - VCSs also include consumption activities, insofar as the value that final customers enjoy is also a function of the way they use and consume the potential value received; - Final customers not only receive and consume the value created, but can also participate in value-creating activities
32 - Activities may be governed by the market, a hierarchy or intermediate forms of coordination; - Various economics players may participate in a VCS by taking responsibility for one or more activities; - An economic player may participate in more than one VCS.
There is however issues related to VCS. By its definition, VCS do not have any perceived boundaries of analysis. For example, if taken to the extreme, VCS for manufacturing a laptop computer would include silicone and metal production (for the processor) activities. A VCS could have such a large number of activities that it would be too complex to analyse and render it useless. So it is up to the analyst to define and set the boundaries when specifying a VCS to be analysed.
Others have also explored the subject of a value system. Porter (1985) proposed the value chain as a framework for analysing the internal activities of a firm. The value chain analysis considers where and how well a firm link all of its various activities to add value (Dobson et al 2004). Porter (1985) states that a firm’s value chain is embedded in a larger stream of activities called the value system.
Figure 1.11: The value system
Source: Porter (1985)
33 Value is passed through the system from the suppliers and eventually ends in the customer. Gaining and sustaining competitive advantage depends on understanding and how well a firm’s value chain fit in the overall value system. The Value Net has a fundamentally different perspective. Instead of analysing value through a single chain (Porter’s value system) with sets of economic players, the Value Net perspective emphasises on viewing VCSs as set of activities (rather than players). These activities start from the customer’s point of view as shown below.
Figure 1.12: The value net perspective
Source: Parolini 1999, pp. 71
As mentioned earlier, VCSs are connected by flows of information, material, financial and relationships. These can then be mapped out using nodes and arrows, which essentially makes up the Value Net.
34 Figure 1.13: The value net
Source: Parolini 1999, pp 81
There are different nodes and arrows which can be applied to show the different kinds of activities and flows respectively.
Goods flow
Information flow
£ Monetary flow Influence relationship Reciprocal influence relationship
In terms of classification of the VCS, the Value Net is also different from the normal approach to classify activities. Most traditional theories will sub-divide the activities into distinct ‘departments’ depending on the subject. For example, Porter (1985) in his value chain framework combines primary and support activities.
35 Figure 1.14: The value chain
Source: Porter, 1985
As can be seen in the value chain, the primary activities are divided into 5 distinct entities; inbound logistics, operations, outbound logistics, marketing & sales and service. Each of these activities has support activities as well, which are divided into firm infrastructure, human resource management, technology development and procurement.
The Value Net has a different classification from the value chain. VCS are classified into three broad groups; external transaction management, support and realization.
36 Figure 1.15: The classification of value net activities
Source: Parolini 1999, pp 89
She states that this is due the difference in interpretation of the nature of activities as well as in analytical perspective. The Value Net emphasises the economic structure and the contribution of value of the activities rather than ‘part’ they play in the ‘operations’.
Concepts and the examples
Table 1.2 lists the concepts used and the relevant examples sourced for the report.
37 Table 1.2: Table of concept and data with sources. No. Concept Example/Data Source 1.0 SWOT Strengths and Weaknesses: Company information Interview with Alan O’Dea (Monumental Opportunities and Threats: Company information and group (Monumental Games) Games) analysis Group observation
2.0 PEST Political e.g. political stability Industry reports (Middleware) Economic e.g. economic growth rate Economic reports Social e.g. available skill set Online news/articles Technological e.g. technological advancement
2.1 PEST (MMOG) Political e.g. social issues, online security Industry reports Economic e.g. economic growth rate Economic reports Social e.g. Online game addiction Online news/articles Technological e.g. internet advancement 3.0 Organisation Organisation Chart Interview with Alan O’Dea (Monumental Company mission and objectives (Monumental Games) Games) Company revenue sources Interview with Rocco Company current and future plans (Monumental Games) Company products and services Company website 3.1 Offering Products: MMOG Middleware Interview with Alan O’Dea (Monumental Technical specifications (Monumental Games) Games) Technological overview Interview with Rocco (Monumental Games) Services: Company website Customer service & Consulting
Game Development: Football Superstars Untitled Game
38 No. Concept Example/Data Source 3.2 Revenue Licensing options and terms Interview with Alan O’Dea (Monumental Support services (Monumental Games) Games) Royalties Interview with Rocco Upfront fees (Monumental Games) Other services e.g. consulting 3.3 Suppliers Specialized modules e.g. SpeedTree, Havok Interview with Alan O’Dea (Monumental Hardware suppliers e.g. IBM (Monumental Games) Games) Human resources e.g. legal solicitors, programmers
3.4 Customers MMOG Game Developers e.g. Neogence Studios Interview with Alan O’Dea (Monumental MMOG Publishers e.g. Electronic Arts, Ncsoft (Monumental Games) Games) Non Game Applicators e.g. Academic institutions, Government 4.0 Competitors List given by client: Competitor Website Direct Competitors e.g. BigWorld Technology, Simutronics Online Articles/Interviews Indirect Competitors e.g. id Software, Epic Games Press releases Licensing comparison Upcoming developments 4.1 Offering Products: MMOG Middleware Technical brochures (Competitors) Technical specifications Competitor Website Technological overview Questionnaire/Interviews Technical comparison Online Forums
Services: Support, Consulting services Customer service Billing Engineering
Game Developments e.g. Simutronics Hero’s Journey
39
No. Concept Example/Data Source 4.2 Revenue Licensing options and terms for each competitor Technical brochures (Competitors) Support services Competitor Website Royalties Questionnaire/Interviews Upfront fees Online Forums Other services e.g. consulting 4.3 Suppliers Specialized modules e.g. Aria Systems, SpeedTree Interview with Alan O’Dea (Competitors) Other services e.g. hosting, bill and customer management (Monumental Games) Hardware suppliers e.g. IBM Competitor Website Human resources 4.4 Customers MMOG Game developers e.g. Bioware, Interview with Alan O’Dea (Competitors) MMOG Publishers e.g. Electronic Arts, Ncsoft (Monumental Games) Non Game Applicators e.g. Academic institutions, Government Competitor Website 4.5 Revenue Licensing options and terms for each competitor Technical brochures Support services Competitor Website Royalties Questionnaire/Interviews Upfront fees Online Forums Other services e.g. consulting 5.0 Industry Industry overview Interview with Alan O’Dea (Middleware) Sources of funding (Monumental Games) Industry players/actors Interview with Rocco (Monumental Games) Competitor websites 5.1 Industry Industry overview International Game (MMOG) Future forecast Developers Association Industry players/actors White Papers Industry reports Interview with Alan O’Dea (Monumental Games)
40 Data for the concepts and frameworks used in the report were acquired through primary and secondary data capture as well as the result of the group analysis. For example, data associated with Monumental Games in terms of their organisation and stakeholders (i.e. competitors, suppliers, customers etc) were mostly acquired through the interviews with key Monumental Games staff, the corporate website and through our observation. Each of those stakeholders was further researched through a comprehensive search on online articles, corporate websites, technical brochures, industry reports and journals. Additional data for the direct competitors of Monumental Games were acquired from the result of the online questionnaire and telephonic interviews.
Initially, Industry related data in such as stakeholders and their inter-relationships in both middleware and MMOG industries were sourced from the interview with key Monumental Games staff. Following on the interview, additional data were obtained from online articles, industry reports and journals.
The accumulation of these data led to the information base for the macro environment analysis of the middleware and MMOG industry.
41 Chapter 2 – Middleware Industry
2.1 Industry Overview
“Game middleware” can be defined as a software suite that consists of game development tools used in the production of video games. It is generally used to reduce the time, complexity and cost of development of video games which are critical factors in the video game industry.
A popular example of a game middleware is the game engine which is the core software component of a video game or interactive application with real time graphics. To a certain extent the game engine can be looked upon as the predecessor of MMOG middleware in a sense that it promoted the use of 3 rd party programs for the development of video games.
Middleware is usually the result of commercialising the development tools used in the production of MMOGs. The licensing of such technology provides an additional stream of revenue for the game development companies. A middleware could include a server engine, client engine, content creation tools, game management tools as well as customer management tools. A middleware developer could also opt to include in their software, specialized modules which essentially provides a specific function such as the graphics engine, physics engine, server engine, artificial intelligence, sound, character database etc.
42
2.2 Macro Analysis As part of the external influencing factors, it is beneficial to examine the macro environment surrounding the middleware industry.
This section investigates factors related to Monumental Games middleware business. The analysis is divided into five factors: political, economical, social, technological and Legal.
A point to be noted prior to further analysis is that the MMO Middleware industry is directly affected by the MMOG developers and publishers as customers, and therefore factors such as disposal income do not affect the middleware industry directly as it affects the MMOG publishers (how much can the individuals/customers spend to purchase the games) and social demographics (age groups and increased access of teenagers to funds to purchase video games) which filters the effect to the middleware developers.
2.2.1. Political Factors
Political factors include political stability and governmental policies towards the industry in which the company operates in including attitude towards tax, employment, trade restrictions and technology transfer.
The company and its competitors operate in politically stable environment as most – if not all – the major companies operate in Europe, United States and Australia where political stability at it worst is not considered to be a concern to the businesses operating in them in general.
43 The major possible restriction in the future might be technology transfer restrictions possibly under the Statutory Instrument 2003 No. 2764 “Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003.
Under the growing demand to restrict the transfer of knowledge and technology to certain regions and countries that are considered a threat to the world peace, laws were passed to control the export of software and technological developments which is mainly designed to prevent the use of such software and technology to develop advanced weaponry.
A UK parliamentary committee (the Quadriprtite Committee), urged the UK government in its first report of session 2006-2007 “Strategic Export Controls:2007 Review” (HC 117) on Tuesday 7 August 2007 to close the gaps and enhance the enforcement of the laws controlling the export of technological advancements.
Although this type of legislation might not directly affect Monumental Games, future developments (non-gaming applications) of uses for the current middleware these restrictions may apply especially for military simulation application.
No other foreseen direct restrictions apply at the moment over the middleware product of Monumental Games.
44 2.2.2. Economical Factors
Economical factors to be considered during this analysis include the current and projected economic growth, inflation rates, interest rates, unemployment, level of disposable income, impact of globalisation, the impact of technological changes on the economy and the likely change of economic environment.
There are several economies that should be taken into consideration (i.e. UK, USA and Australia) as the company and its competitors operate in these industries.
According to the report by the HM Treasury “Forecasts for the UK economy: A comparison of independent forecasts” compiled by the Macroeconomic Prospects Team
1- The UK GDP growth rate for the period February 2006 until August 2007 ranged between 2.5% and 2.8% with a stable increase since December 2006.
The forecasts show that the UK economy shows a historically stable economic growth rates which is expected form a developed country.
45
Figure 2.1: UK GDP Growth Rate for the period February 2006 – August 2007
Average of independent forecasts for 2007: GDP
2.9
2.8 2.7
2.6
2.5
2.4 2.3
2.2 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07
Source: Forecasts for the UK economy: A comparison of independent forecasts” compiled by the Macroeconomic Prospects Team
2- On the other hand, the medium-term forecasts for the coming years shows some slight decrease in the growth rate, though not at an alarming decrease of percentages at 0.3% to 0.4%.
46
Figure 2.2: UK GDP Projected Growth Rate
Average of medium-term forecasts for GDP growth
2.9
2.8 2.7
2.6
2.5
2.4
2.3
2.2 2007 2008 2009 2010 2011
Source: Forecasts for the UK economy: A comparison of independent forecasts” compiled by the Macroeconomic Prospects Team
3- The inflation rate average for the period February 2006 until August 2007 ranged between 1.9% and 2.1% with minor fluctuations. It should be noted that the interest rates and inflation rates are directly related and the movement of the inflation rates would be accompanied with a movement of the interest rates.
47
Figure 2.3: UK CPI Inflation Average Rate for the period February 2006 – August 2007
Average of independent forecasts for 2007 CPI inflation
2.15
2.1
2.05
2 1.95
1.9
1.85
1.8
6 7 7 -06 -0 -07 -0 b-06 b-0 e pr-06 ug-06 pr-07 F A Jun A Oct-06 Dec Fe A Jun Aug
Source: Forecasts for the UK economy: A comparison of independent forecasts” compiled by the Macroeconomic Prospects Team
4- As for inflation, the medium-term forecast is for a drop of 0.4% from 2.4% to 2.0% which would be maintained for the next three years. This means that costs would drop in addition to interest rates.
48
Figure 2.4: UK GDP Projected CPI Inflation Rate
Average of medium-term forecasts for CPI inflation
2.5
2.4 2.3
2.2
2.1
2
1.9
1.8 2007 2008 2009 2010 2011
Source: Forecasts for the UK economy: A comparison of independent forecasts” compiled by the Macroeconomic Prospects Team
5- As noted previously, the company is operating in a stable economic environment which is the result of the UK being a developed country. This would cause a relatively highly stabled economic environment (relative to developing and under developed regions). 6- As the economy is mature, we don’t believe that major fluctuations or disturbances would occur in the medium term, and other than separate economic events that are short lived and/or unpredictable by nature we think that the economic factor is favourable 7- We believe that the same economic factors can be generalised for the USA and Australia economies as they are also matured and developed economies.
49
2.2.3. Social Factors
The main social factor that influences the industry of MMOG middleware is the human resources and the available skill sets.
The following describes this factor in more details:
1- As the industry is young, the skill sets required for the development of MMOG middleware is scarce. The competition over procuring the available individuals with relevant and appropriate skills is high and companies are going the extra mile to offer the best packages possible to attract these individuals. This could add more pressure on the financial abilities of the companies as firms within the industry can not afford having low skill sets within it employee force.
2- Another possible factor is the trend by developed countries and regions to export the required technological skill sets from the developing and/or under developed countries to cover the deficit in these regions. This is affecting the demographics and social factors within the developing countries as much as the exporting countries.
The effect on the exporting countries is mainly the loss of skilled man power that is necessary for them to achieve further development and enhance the living conditions of the lost skills countries which impairs the efforts to enhance the economical development.
50 3- On the other side of the equation, although the developed countries/regions gain the required skills sets, they are currently facing socio-political and demographic issues.
The importing countries are facing a rapid change in there demographic structure. These changes have caused some parties within these countries to start rejecting the idea of accepting the immigrants blend in their society (e.g. right wing political parties in France) in which the governments had to pass laws against discrimination (e.g. racism is – by law – outlawed in Germany).
4- Another factor that is increasingly gaining importance is the wage inequality between local work force and exported worker (especially if they are exported from developing countries) where the companies prefer to hire foreigner with lower wages. This is causing discontent among the local work force.
2.2.4. Technological Factors
We believe that the world is living in an age of rapid technological enhancement. We become constantly aware of new technological upgrades and enhancements on a regular basis whether in medical, defence or computer sciences among other aspects.
Yet, we support the point of view of Robert Adler published in an article in NewScientist “Entering a dark age of innovation” published on July 2005 which is based on the conclusion of Jonathan Huebner (a physicist working for the Pentagon’s Naval Air Warfare Centre) stating that the rate of technological innovation reached a peak a century ago and has been declining ever since. This point of view was supported by study through
51 plotting the major innovative and scientific advancements over time compared to world population using the 7,200 key innovation as listed in the published book “The History of Science and Technology” (Houghton Mifflin, 2004). The results showed that the peak was in 1873 and it declined since. By dividing the number of patents granted in the US per decade to the county’s population the result was at peak in 1915.
The last major innovative technological breakthrough (we are aware of) was the internet. All the later technological enhancements whether better computers or faster internet speed technologies are the natural enhancements of the new invention. Therefore the factor that is important here is the rate of change of technological enhancements rather than innovation.
As in most major technological enhancements and breakthroughs, they start as a military, intelligence or defence application (e.g. the internet). Therefore, we believe that the governmental spending over research and development (R&D) is of importance.
The United States of America has launched the “American Competitiveness Initiative” in 2006 to start in 2007 with a budget of $ 10.7 billion (an increase of overall funding of $ 910 million from 2006 spending) to be doubled within 10 years. These funds are mainly for R&D for three Federal agencies – The National Science Foundation (NSF), the Department of Energy’s (DOE) Office and the Department of Commerce’s National Institute of Science and Technology (NIST). In the UK, sixty six percent of the total R&D expenditure is generated by the private sector and the foreign owned companies account for forty five percent of all R&D business. In addition, the UK government offers tax credits to encourage R&D activity and companies with 500+ employees qualify for additional tax relief
52
These types of initiatives, focus and R&D spending drive the innovation process forward for new uses of current technologies and the innovation of new technology.
The technology and technology-based industries are living in a highly volatile market where new innovations are made frequently which puts additional pressure on the companies to keep up and maintain there own innovation process on alert.
2.2.5. Legal Factors The most important legal factor in this industry is the Intellectual Property protection.
Concerns for the technology companies in the western world regarding protecting their developed intellectual properties as the laws are minimal as strict laws exist to protect these properties. The concern is therefore shifted to the developing and under-developed countries and regions in which such laws are weak or non- existing.
53
2.3 Industry Analysis A major limitation to our work was the unavailability of sufficiently substantiated literature and industry publications that would provide verified data and specialised insight of the middleware industry.
We will use the Porter’s Five Forces framework to identify the factors that affect the competitiveness and competitive environment of the company and rivals in the industry.
Supplier Power In this industry, the suppliers are the human resources of the middleware designers, hardware suppliers and the investors as financial resources supplier.
- Human Resources
A major factor in the industry is the availability of the specialist programmers that are able to design and develop middleware in the best possible manner. It is not the rarity of the programmers of middleware – as programming requires wide spread programming languages like C++ and Java – but the availability of the programme designers that are proficient and well experienced that is the factor. The shortage of the designers’ numbers forces the middleware developers to attract such resources in any mean possible through offering substantial compensation packages. This shortage can be attributed to the relatively young industry in which expertise and knowledge is still developing and there have not yet been time to transfer the knowledge.
54 Therefore, the strength of this type of supplier is high.
- Investors:
Any organisation requires financing to start up the business and for continuous operations. The financing could be from internal sources (results of operations) and/or from external sources (investors).
By nature investors are wary of relinquishing their funds for an investment.
There are two points of view over this industry; the first is optimistic of the MMO games industry and consider it as the next big thing, therefore the investors want to enter this market and are willing to invest in both the MMOG and the middleware sectors.
The second point of view is rather pessimistic in which investors look at the current growth rates of the MMOG industry and compare it to the dot com industry bubble and are reluctant to invest at this time and would rather wait until the market and industry are stabilised.
In either way, the investors hold a powerful advantage over the developers as they might request high returns as a result of their high expectation of the industry or need to be convinced to invest at this time to take advantage of possible high gains if the industry maintains growth.
55 - Hardware suppliers:
The suppliers of the high-tech equipment needed to perform the programming and development of the middleware.
Although high specification equipments are required, the hardware suppliers do not retain sufficient power to influence the middleware developers.
This is due to the high number of potential suppliers (e.g. Dell, HP, IBM etc.) who offer a large number of products and services and are currently in high competition to gain new businesses especially with the high-tech specialised hardware.
According to the previous analysis of the suppliers’ power, we believe that the company is operating in an unfavourable condition from the supplier factor as the major suppliers maintain high power over the industry.
Buyer Power
In this industry, the major buyers/customers are the MMO games developers and the non-gaming applications developers (i.e. Defence Departments, Universities etc.).
- MMOG developers
In the supply chain of producing and publishing the MMO games, the games’ developers might be the weakest of them all. The developers are controlled by the publishers either
56 directly (i.e. ownership) or indirectly (i.e. controlling the funds transfer and setting up the deadlines).
The developers need the middleware to produce a MMO game; therefore they are in need of the product. Combined with the relatively small number of middleware developers that can provide good middleware to be used (i.e. Bigworld, Simutronics etc), the MMO games developers do not have many choices to go through and therefore their bargaining power is low.
- Non-Gaming Applications developers:
In contrast to the MMO games developers, these parties are independent from the control of the publishers and often operate on governmental and/or private sector R&D funding.
Accordingly, these developers would have higher request from the middleware developers from the technical specification to after sale support and updating.
On the other side of the transaction, the middleware developers are seeking markets other than the MMO gaming market to diversify their risks and to bring their product to its full potential.
With the desire by the middleware developers to expand to non gaming markets and the relative independence of the non gaming customers, this part of the buyers retain high bargaining power.
57 The combined effect of both buyers bargaining power is a moderate power, on the other hand, the pricing for the MMOG middleware is relatively stable and the desire to diversify the use of the middleware into other applications may unbalance the power to the benefit of the buyers.
Threat of Substitute
Currently the substitutes for the MMOG middleware do not exist, yet there are two possible substitution of the provider of the middleware; in-house development and the traditional video game developers.
In both cases additional funds, man power, technology investment and time are required to either develop the middleware or retrofit the existing middleware to support MMO games.
In either case we believe that current threat from substitutes is low. It must be noted that developments over the next generation MMOG middleware may be in progress and the company need to keep updated of new developments and plan to upgrade its products to match future expectations.
Threat of Entrants
Entering this industry requires extensive funds, technology investment, acquiring key specialised human resources and long periods of time to develop a middleware on the commercial competitiveness level. On the other hand there are the non-commercial (Free to use) available in the market.
58
- Resources
Developing a middleware that would be commercially competitive requires key resources such as financial funds, specialised programme designers and time.
As discussed earlier, we have established that specialised personnel and finance gave suppliers a high bargaining power over the middleware developers. Long periods of time to develop a successful product that can compete in a highly competitive environment are necessary which in combination with the other factors makes the industry look difficult and/or non-profitable to enter from the outsider point of view
- Commercial (licensing) middleware:
We believe that when comparing the number of major new MMO games launched and taking into consideration that the developers use the same middleware for more than one MMO game, the number of companies providing the product does not need to be high, as a small number of companies providing high quality re-usable product can cover the current demand for the product, therefore no need for new entrants.
- Non-Commercial (free to use) middleware:
Although this is not the market in which the company operates in, it is part of the industry and they are the easiest
59 to convert into commercial middleware through minimising the time and investments needed to upgrade these products.
As the providers of such product are usually small firms or individuals, the difficulty of entering this sector of the industry is low.
We believe that the possibility of new entrants is low in addition to their ability to compete immediately is not a danger to the existing firms in the industry.
Yet this does not mean that if there is an organization or group of individuals that already obtained the various components need to enter the market would not find it easy to enter and compete with existing firms.
Rivalry
With regard to the rivalry and competitors factor of the industry, we have two different views with this regard.
The first is related to the number of companies providing high quality middleware solutions, the number of firms developing MMO games and the fact that a single middleware can be used for several different games in which we believe that the supply-demand equilibrium exists where demand is met by sufficient supply and the competition to supply is not intense and there are no reasons for it (on the short term) to become so.
The second is related to the future predictions of the increased number of both the MMOGs in the market and the number of online gamers over the medium and long runs in addition to the increased requirements by the gamers to diversify the MMOG genres into genres other than the dominant genre of fantasy RPGs. This would increase the demand over higher quality middleware (i.e.
60 middleware with technical specifications able to meet the demand of higher quality games and being compatible with the technical requirements of the games genres like the FPS games).
The increased demand would unbalance the equilibrium and would require higher demand in order to return back to that state. In this scenario, the competitive rivalry will intensify significantly over the technical specifications and quality of the middleware. It is possible that existing firms will not be able to keep up with the supply-demand changes or new entrants would become a serious threat in the industry.
We have experienced through our questionnaire and telephone conversations with Monumental’s competitors both views as some firms were cooperative with us, we were unable to sense most as they did not participate and a minority that explicitly stated that the firm’s “policy is not to participate due to the competitive nature of the industry”.
61 Figure 2.5: Middleware Industry 5 Forces
New Market Entrants
• Entry is hard due to specialist requirement • High requirements for commercial middleware developers • Low requirements for free for all middleware developers
Supplier Power Competitive Rivalry Buyer Power
• Low availability of • Limited choice for game specialists/program designers • Middleware Competitors developers • • Abundant hardware suppliers (balanced in the short term and Unique and specific • Investors (Interested but increased competition in longer requirements for non-game cautious) term) applications
Substitutes
• In-house development (requires substantial development time and funds)
62 2.4 Competitors Analysis
2.4.1. Direct Competitors
BigWorld Pty Ltd (www.bigworldtech.com) Founder: John De Margheriti (CEO)
Introduction BigWorld Pty Ltd is an Australian based middleware company spun off from Micro Forte Pty Ltd, a leading Australian game development studio.
Product & Services BigWorld MMO Technology Suite The BigWorld Technology Suite consists of the client engine, server technology, content creation tools and server management & monitoring tools. BigWorld Instrumentation A toolset that helps to monitor, collect and analyze game data during game development. BigWorld Mobile BigWorld Mobile is a layer that is built especially for handheld devices and mobile phones to enable integration with a BigWorld server. Consulting BigWorld also provides a variety of consulting services in areas such as MMOG design, security, finance, hosting etc.
Licensees The lists below are the latest licensees to use BigWorld MMO Technology Suite for their game development. Stargate Worlds - Cheyenne Mountain Entertainment (US)
63 Undisclosed game title - Slipgate Ironworks (US) Tian Xia 2 – Netease (China) House of Flying Daggers - T2CN (China) Undisclosed game title – UserJoy (Taiwan) Floral Fire Online - TianCheng Interactive (China) Undisclosed game title – Cpegasus Network Technologies(China) Undisclosed game title – Interzone Games (US) Storm Hawks – Bitcasters (Canada) Undisclosed FPS title- Kwari, UK
Additional Information
BigWorld has never fully developed and published an in-house MMO game. Their first game initiative called Citizen Zero that has been in development since 1999 was cancelled in March 2007. However, BigWorld has announced a new spy themed MMO game that is currently in development. Bigworld has received a total of Aus $ 5 million in investments from venture capitalist Allen & Buckeride and Aus $ 6.66 as grant from the Australian Federal Government. The current annual turnover of the company holds at Aus $ 10 million.
Simutronics Corporation (http://www.play.net/corporate/) Founder: David Whatley (Present President and CEO)
Introduction Simutronics Corporation founded in 1987 is a privately held company in Virginia, US. The company started off developing and hosting text based multiplayer fantasy games but soon entered the MMOG arena in 1990’s. Simutronics is currently developing its own MMORPG and is also licensing its MMOG middleware.
64
Products & Services Games Gemstone 1-4 Text based online multiplayer fantasy DragonRealms game Alliance of Heroes Cyberstrike 2 3D online multiplayer game Hero’s Journey 3D MMORPG under development
HeroEngine The HeroEngine is a 3D game engine server and server technology platform developed by Simutronics specifically for building MMO style games. The Hero Engine consists of Area Systems (Server), Hero Blade (Client, content creation and management tools) and a back office solution.
Licensees Unnamed game title – Stray Bullet Games, Texas Unnamed game title – Colony Studios, U.S. A Unnamed game title- Bioware Austin AWOMO – Games Domain International,UK in partnership with Virgin Games, UK . Developer – Trianit, Germany
Licensing Terms The licenses offered by Simutronics include Prototype & Evaluation, Basic HeroEngine license, Source Code license and Back Office license.
65
Emergent Game Technologies (http://www.emergent.net/)
Introduction Emergent Game Technologies (EGT), previously known as Butterfly.net Inc was founded in 2000 to provide integrated tools, middleware and services for the online video games industry.
Product and Services Emergent Elements EGT currently offers three product packages – Gamebryo Element, Metrics Element and Automation Element. Two other packages under development are the server engine and online game services which are streamlined toward MMO technology requirements. Engineering Services These include custom Engineering, Consulting and Training
Licenses The licenses offered by EGT include Gamebryo license, Evaluation kit, Xbox Live Arcade license, Emergent Academic Program.
Licensees The Gamebryo engine has been used to develop more than 200 titles on consoles and on the PC. Emergent claims that currently more than 50 titles are under development. Some of the major well known developers which use EGT’s Gamebryo include. Bethesda Soft works ( Morrowind , Oblivion and Fallout 3 ) Firaxis (for Pirates! , Civilization IV and Railroads! ) Irrational Games ( Freedom Force ) Mad Doc Software ( Empire Earth II )
66 Mythic Entertainment ( Dark Age of Camelot ) Timegate Studios ( Kohan II ) MindArk ( Entropia Universe )
Additional Information July 2007: Emergent received $12 million of funding from Jerusalem Venture Partners and Worldview Technology Partners led the round with Adena Ventures, Walker Venture Copan and Cisco Systems.
Icarus Studios
(www.icarusstudios.com)
Founder: Charles Tyson (CFO) James Hettinger (CEO)
Introduction
Icarus Studios is founded in 2001 is a North Carolina based technology and services company dedicated to helping clients build virtual worlds, MMOGs, simulators and 3D collaborative and educational products.
Product and Services
Icarus Rapid Application Development (RAD) Tool Suite The suite includes a complete system for building, hosting and managing virtual worlds.
Icarus Platform Icarus Platform is a server engine coupled with a server management system.
Icarus Production Services These services include Design consulting, prototype development, project outsourcing, staff augmentation and world hosting services.
67
Icarus Studio Services Studio services are available for purchase such as motion capture, sound studio, art creation and 3D interior scanning.
Licensees
Fallen Earth – Fallen Earth Inc Atlantis Rising – Platinum Studios
Additional Information
Initial Investment for the company was made by its founders. In 2005 Icarus Studios received further funding from a venture capitalist firm.
Nice Tech (www.nicetech.co.uk )
Introduction
Nice Tech Ltd, formerly known as Nicely Crafted Entertainment Ltd was formed in 2001 in Cambridge, England to design and develop Massively Multiplayer Online (MMO) games, virtual worlds and simulations.
Products and Services
AliceServerAR
The technology is a networked virtual world modelling system used by Nice Tech to develop MMOGs and simulations.
68 Games
Time of Defiance – Publisher Oxygen Interactive and Publisher Strategy First for North America Republic Dawn – Under Development Tronji Wonderland – Rag Doll World Wide Limited
Licensees
NiceTech’s AliceServer is not available for licensing to external parties.
Investments
In August 2005 Zyzygy plc, a specialist investment firm announced that it had acquired a 32% holding in Nice Tech Ltd for an undisclosed sum.
The Multiverse Network Inc (www.multiverse.net) Founder: Bill Turpin (President and CEO) Rafhael Cedeno (Chief Technology Officer) Robin McCollum (Principal Engineer) Corey Bridges (Executive Producer and Marketing Director)
Introduction
In July 2004, a team of Netscape veterans founded The Multiverse Network, a California based company aiming to become the world’s leading network of MMOGs and 3D virtual worlds.
Product & Services
The Multiverse Technology Platform A comprehensive pre-coded client server infrastructure and tools which includes
69 Multiverse Client, Multiverse Servers, Multiverse Plug-Ins, Multiverse Tools and Multiverse Infrastructures
Developer Marketplace An online store where game developers can buy or sell the assets for games built on the Multiverse Platform.
3) Multiverse Network A network (enabled by the Multiverse Client) that lets players access to all the MMOGs and virtual worlds built on the Multiverse Platform.
4) Hosting Multiverse is currently working with hosting partners to provide hosting services for interested developers.
5) Games
• Kothuria : Underdevelopment • Project 880 : Underdevelopment Collaboration with Movie Director, James Cameroon • Firefly: Underdevelopment., Rights obtained from 20 th Century Fox
Licensees
A partial list of the games under development is listed below.
• Arden : Synthetic Worlds Initiative (Indiana University) • Dark Horizons: The Awakening from Max Gaming Technologies • Force of Arms : Wardog Studios • Project Mars: Mars Colonization Authority • Forgotten Legends : Doomsberg Entertainment • Black Ice Tales : Moonshine
70 Investments
The Multiverse Network has raised $800,000 from angel investors and $500,000 from CEO Bill Turner. On May 31 st 2007, Multiverse secured a $4.175 million Series A funding led by Sterling Stamos Capital Management and other business angels.
Business model
Multiverse provides its technology platform cost-free for development and deployment. Income comes through revenue-sharing where Mutliverse retains 10% of the gross revenue once the game developer starts charging the players.
Linden Labs
(http://lindenlab.com)
Founder: Philip Rosedale (CEO)
Introduction Linden Lab is the creator and developer company behind Second Life. Founded in 1999 by Philip Rosedale and based in San Francisco.
Products and Services
Second Life
Second Life is a 3-D virtual world entirely built and owned by its residents Linden Lab describes Second Life as interactive virtual society, one where any number of people can enter a simulated world, travel anywhere within it, meet and play with fellow citizens in real-time and engage in any number of activities, limited only by their imaginations. The 3D platform can be used for • Presenting, promoting and selling content
71 • Collaborating and communicating • Researching new concepts/products • Training and education
Second Life Grid The Second Life Grid is a service platform that provides infrastructure, consumer features, tools and services to any organization so as to add it’s on own content in Second Life.
Investors
Linden Lab is funded by a group of notable early stage investors including Mitch Kapor, founder of Lotus Development, Catamount Ventures, and Benchmark Capital. It also received an investment of US $8 million by Benchmark Capital and eBay founder Pierre Omidyar’s, Omidyar Network. Linden Lab also received US $11million in New Financing from Globespan Capital Partners
Perpetual Entertainment
(www.perpetual.com)
Introduction
Perpetual Entertainment formed in 2004 is a San Francisco-based developer, publisher, and operator of networked multiplayer and massively multiplayer online games for the PC and next-generation videogame consoles.
Products and Services
Perpetual Entertainment Platform (PEP)
The Perpetual Entertainment Platform (PEP) is a complete solution for developing, hosting, monitoring, and operating any networked online game.
72 Games Developed by Perpetual Entertainment
Gods and Heroes: Rome Rising (Published by Sony Entertainment Online) Star Trek Online (Published by Perpetual Entertainment)
Licensees
Undisclosed game title – BioWare, Austin
Additional Information
In May 2006 Korean firm Gravity Co. purchases 19.2million shares for US $ 9 million. In November 2003, Perpetual secures US $ 4.5 million from Manitou Venture and Mobiuos Venture capital and Manitou Ventures. In September 2004, Perpetual secured US $ 6.5 Million from SOFTBANK Capital with Manitou Ventures Mobiuos Venture capital and Chengwei Ventures also participating.
Kaneva Inc
(www.kaneva.com/channel/KanevaEliteDevelopers.channel)
Founders: Christopher Klaus (CEO) Greg Frame (Chief Gaming Officer)
Introduction
Kaneva Inc founded in 2004 is a privately owned Atlanta-based company Kaneva was originally founded to develop MMOGs but its founders decided to commercialise the MMO platform instead. In late 2004, Kaneva released the Kaneva Game Platform (KGP) as a middleware for MMO game developers.
73 Products and Services
The Virtual World of Kaneva An online 3D social networking virtual world.
Kaneva Game Platform The KGP consists of Kaneva Game Server, Kaneva Game Client, Artificial Intelligence and Kaneva Game Studio™.
Kaneva Elite Developers An online forum for game developers.
Licensing Terms
Kaneva currently issues two kinds of licenses - non-commerical license and commmercial license.
Direct Competitors Overview
Table 2.1 shows the overview of the direct competitors with respect to their products and services, licensing options, licensees and their games.
74 Table 2.1 Direct Competitors Summary
Company Products & Services Licensing Licensees Games Name Options BigWorld Pty Ltd, Middleware • Commercial • Cheyenne Mountain • Stargate worlds Australia • BigWorld MMO Technology Suite License Entertainment (US) • BigWorld Instrumentation • Stargate worlds • Undisclosed game • BigWorld Mobile title • Netease(China) • TianXia 2 Services • Consulting • T2CN(China) • House of flying daggers Games • User Joy(Taiwan) • Undisclosed game Undisclosed spy themed title MMO(Underdevelopment) • Tian Cheng • Floralfire interactive Interactive(China)
• Cpegasus Network • Undisclosed Game Technologies(China) Title Simutronics Games • Prototype & • Stray Bullet Games, • Unnamed game title Corporation, U.S.A • Gemstone 1-4 Evaluation license Texas • DragonRealms • Basic Hero • Colony Studios, U.S. A • Unnamed game title • Cyberstrike 2 Engine license • Bioware Austin • Unnamed game title • Alliance Of Heros • Source Code • Games Domain • AWOMO • Hero's Jouney(Underdevelopment) License International, UK in partnership with Virgin Middleware Games, UK . • HeroEngine Developer – Trianit, Germany
Emergent Game Middleware • GameBryo • Bethesda Soft works • Morrowind, Oblivion Technologies, • GameBryo Element License and Fallout 3 U.S.A • Metrics Element • Evaluation Kit • Firaxis • Sid Meier’s Pirates!, • Automation Element • Xbox Live Civilization IV and • Server Engine(Underdevelopment) Aracade License • Irrational Games Railroads!
75 Company Products & Services Licensing Licensees Games Name Options • Online Game • Emergent • Freedom Force Services(Underdevelopment) Academic • Mad Doc Software • Empire Earth II Programme Services • Mythic Entertainment • Dark Age of Camelot • Engineering Services • Timegate Studios • Kohan II • MindArk • Entropia Universe Icarus Studios, Middleware • Free to Use with • Fallen Earth Inc • Fallen Earth U.S.A • Icarus Rapid Application royalties • Platinum Studios • Atlantis Rising Development (RAD) Tool Suite • Icarus Platform
Services • Icarus Production Services • Icarus Studio Services NiceTech, U.K Games • AliceServer is not • Oxygen Interactive • Time of Defiance • Republic Dawn(Status Unknown) open to licensing • Ragdoll Worldwide Ltd • Tronji Wonderland
Middleware – Not Licensed • AliceServerAR
Services • Game/Simulation Development The Multiverse Middleware • Free to use Few Select Developers: Few Select Titles Network Inc., U.S.A • The Multiverse Technology Platform license • Max Gaming • Dark Horizons: The • Revenue Sharing Technologies Awakening Services 10% of Gross • Wardog Studios • Force of Arms • Developer Marketplace Revenue • Mars Colonization • Multiverse Network Authority • Project Mars • Hosting
Games Project 880 : Underdevelopment Firefly: Underdevelopment
76 Company Products & Services Licensing Licensees Games Name Options Linden Labs,U.S.A Virtual World • No option for • Second Life licensing on middleware Services • Second Life Affiliate Programme Perpetual Product • Commercial • Bioware Austin Studio • Undisclosed Game Entertainment • Perpetual Entertainment Platform License Title
Games • Gods & Heroes : Rome Rising (Co- Published with SOE) • Star Trek Online (Rights obtained from Viacom Consumer Products) Kaneva Inc. Product • Non – 31 games/simulations • Kaneva Game Platform Commercial Use underdevelopment by License hobbyists Virtual World • Commercial • Planning – 18 • The Virtual World Of Kaneva License Projects • Pre-Alpha – 9 Services Projects • Kaneva Elite Developers • Alpha – 1 Project • Beta – 3 Projects
77 2.4.2. Indirect Competitors
Epic Games Inc. (http://www.epicgames.com/) Founder: Tim Sweeny (CEO)
Introduction Epic Games formerly known as Epic Mega Games is a game development company based in North Carolina, U.S.A.
Products & Services Games Gears of Wars Unreal 1 & 2 Unreal Tournament 1, 2, 2004, 3 & 2007 Unreal Championship 1 & 2
Unreal Technology (complete game development framework) Unreal technology is a 3D engine aimed at next generation consoles.
Unreal Runtime The UnrealEngine2 Runtime software is the state of the art in cross-platform, real-time 3D rendering solutions for the desktop.
Unreal Developer Network (http://udn.epicgames.com/Main/WebHome.html) The Unreal Developer Network is a online resource that’s available to all licensees and the mod community.
78 Licensing terms Unreal Engine 2 The Unreal Engine 2 licenses are issued based on per platform basis (Xbox, PS2 and PC). • Royalty-Bearing License - For retail console & PC products • Custom License Terms - For non-traditional products Unreal Engine 3 Unreal Engine 3 is aimed at early-adopter game developers who are targeting next-generation consoles and DirectX9 PC's. Unreal Engine 2 Runtime Currently the demo version is for non commercial use only. Epic is currently developing a licensing package for Unreal Engine 2 Runtime.
Licensees Undisclosed title - Star Vault AB Crimecraft - Vogster Entertainment LLC Stargate Worlds . - Cheyenne Mountain Entertainment
Valve Corporation (www.valvesoftware.com) Founder: Gabe Newell (Managing Director) Mike Harrington (left in 2000)
Introduction Valve Corp. is an entertainment software and technology company founded in 1996 and based in Bellevue, Washington.
79 Products & Services Games Half Life 1 & 2 Counter Strike Day of Defeat Team Fortress Portal
Source Engine - Game engine Source provides enhancements in several key areas including production tools, character animation, advanced AI, real-world physics, and shader-based rendering.
Steam Steam is an online distribution platform that delivers games and other contents directly to customers.
The Official Cybercafe Program The program is for users who run cybercafes and gaming centres who wants to legally use Valve’s games.
Licensing terms Source Engine & Steam All enquiries have to be forwarded to Valve Corp.
The Official Cybercafe Program The program offers 2 billing plans to subscribers Seat Subscriptions: This billing plan allows unlimited game play on the number of seat subscriptions purchased at any given time. Prepaid Time: Valve Cyber Café Program Subscribers can purchase game time in 100, 500, 1,000, and 3,000 hour blocks.
80 Licensees Undisclosed Title - Nexon (Korea MMO Publisher) DEFCON - Introversion
id Software (www.idsoftware.com) Founder: John Carmack (Now Technical Director for id)) John Romero (Left to form own company) Tom Hall (Fired by id during Doom’s development) Adrian Carmack (Fired during Quake II development)
Introduction id Software was founded in 1991 is a Texas based game developer.
Products & Services Games Wolfenstein 3D Doom 1, 2 & 3 Quake 1, 2, 3 & 4 Enemy Territory
Id Tech (game engine) Id Tech 5 – Under development id Tech 4 – id software’s current multi-platform technology and is available for licensing . Other engines include id techs 3 and id tech 2.
Commercial Exploitation The above is a license to use the full version of Quake2 and Quake 3 at any location such as internet cages, gaming centres etc.
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Licensing terms License option for Hardware Developers A license to use id’s latest Tech engine for a flat fee of $150,000.00 with no royalties and includes all source, tools and games content. Non-game applications If the engine is used non-game applications, id is willing to negotiate licensing deals. Commercial Exploitation Quake 2 & Quake 3 Arena A one off $500 processing fee to id Software. No royalties if gross income is less than $5000.00 a month. If gross income is more than $5000.00, a 12.5% royalty fee is to be paid to id Software.
Latest News & Developments (MMO Related)
20 th February 2007 – Interview with Steven Nix (Id’s Director of Business Development) with GamesIndustry.biz: “Would id ever do an MMO?” "It’s not something we’ve seriously considered. Obviously at every company, there’s MMO fans. I can’t say we’d never do an MMO. It’s not something we’re actively talking about now."
Crytek (www.crytek.com) Founder: Cevat, Avni and Faruk Yerli
Introduction Crytek is an interactive entertainment development company in 1999 and the head office is located in Frankfurt am Main, Germany.
82 Products & Services 1) Games Farcry Crysis (2007)
2) CryENGINE CryENGINE 1.x CryENGINE 2.0 – Latest version of the engine from crytek.
Licensing Terms CryENGINE 1.x CryENGINE 2 - All enquires to be directed towards Crytek
Licensees (MMO Related) Kailas - WeMade Entertainment NED . - WeMade Entertainment Undisclosed title - Avatar Reality Inc Aion, Tower of Eternity - NcSoft
Instinct Technology (www.instinct-tech.com)
Introduction Formed in 1999 Instinct Technology began full-time development of its next- generation technology platform, Instinct Studio in 2002 ,following considerable acclaim from the worldwide amateur development community for its first serious demo release in 2001.
83 Products and Services Instinct Studio Instinct Studio is a one-stop game creation solution, fully integrated and powered by runtime components. AI.implant AI.implant an artifical intelligence module can be licensed as a standalone product, or bundled with the Instinct Studio suite at a discounted price.
Licensing Terms Evaluation: There is a free 30 day evaluation copy of Instinct Studio if requested. During the evaluation period, customers can get support through a forum. License package: Contact Instinct Technology.
Latest News and Developments The University of Abertay Dundee and Instinct Technology have signed a deal to create what will effectively be a virtual incubator mechanism for training the next generation of games programmers.
Vicious Cycle Software Inc (www.viciouscycleinc.com) Founder: Eric Petersen (President, Owner) Wayne Harvey (Vice-President, Owner)
Introduction Vicious Cycle Software Inc. was formed in 2000 by members from MicroProse development studio after it was closed by Hasbro Interactive.
Products & Services Games Robotech Invasion
84 Spy vs. Spy Puzzle Quest
Vicious Engine Vicious Engine - The Vicious Engine is a comprehensive middleware solution that gives developers the power to make exciting, dynamic games without the costly steps of creating an engine and tool set. Vicious Engine 2 - The Vicious Engine 2 is designed to take advantage of the advanced graphic technology and hardware features of the PC, Xbox 360, and PlayStation 3.
Licensing Terms Vicious Engine Rising Stars program The program allows independent game developers six months access to the Vicious Engine build.
Vicious Engine & Vicious Engine 2 Details not available
Latest News & Developments 28 th June 2007 – Vicious Engine Powers New Job Training Software for IBM Vicious Engine has been selected by Center Line for the development of a new revolutionary used of business research and job training for IBM. The program called INNOV8: A BPM (business process management) Simulator will be used by IBM in certification and education programs worldwide.
21 st June 2007 – D3Publisher Acquires Vicious Cycle Software Inc.
Indirect Competitors Overview Table 2.2 shows the overview of the indirect competitors in terms of their products and services, licensing options, licensees and their games.
85 Table 2.2 Indirect Competitors Summary Company Products & Services Licensing Options Licensees/Partnership Application Name Epic Games, Games Unreal Engine 2 • StarVault AB, Sweden • Undisclosed U.S.A • Gears of Wars • Royalty Bearing License – • Vogster Entertainment Title • Unreal 1 & 2 For Retail Consoles & LLC • Crime Craft • Unreal Tournament 1, 2, 2004, 3 & PC’s • Cheyenne Mountain • Stargate Worlds 2007 • Custom License Terms – Entertainment • Unreal Championship 1 & 2 For Non-Traditional Products Game Engine/Platform • Unreal Technology (complete game Unreal Engine 3 development framework) • Unreal Runtime Unreal Engine 2 Runtime • Unreal Developer Network Valve Games Details unavailable for • Nexon (Korea) • Undisclosed Corporation, • Half Life 1 & 2 Source & Steam Engine • Introversion Title U.S.A • Counter Strike • Defcon – Online • Day of Defeat The Official Cybercafe Multiplayer • Team Fortress Program • Portal • Seat Subscriptions • Prepaid Time Game Engine • Source • Steam Service • The Official Cybercafe Program Id Software • Wolfenstein 3D • License option for • Doom 1, 2 & 3 Hardware Developers • Quake 1, 2, 3 & 4 • Non-game applications • Enemy Territory license • Commercial Exploitation Game Engine • idTech 5 - Underdevelopment • idTech 4
86 Company Products & Services Licensing Options Licensees/Partnership Application Name • idTech 3 • idTech 2
Service Commercial Exploitation Crytek, Games Details unavailable • WeMade • NED, RTS PC Germany • Farcry Entertainment (Korean game • Crysis (2007) MMO publisher) • Kailas, Game Engine • Avatar Reality Inc MMORPG • CryENGINE 1.x • Undisclosed • CryENGINE 2.0 Title – Massivly Mutiplayer Virtual World • NcSoft • Aion, Tower Of Eternity, MMORPG Instinct Products • 30 day evaluation license • Partnership - The • Non-MMO Technology, • Instinct Studio • Full License Details University of Abertay Application Ireland • AI Implant unavailable Dundee Virtual incubator mechanism – training the next generation of games programmers. Vicious Cycle Games • Vicious Engine Rising • Center Line – • Non- MMO Software Inc. • Robotech Battlecry Stars program Developer of Business application U.S.A • Robotech Invasion • Licensing details for and Training INNOVA 8 – BPM • Spy vs. Spy Vicious Engine - Not Programme for IBM Simulator • Marvel Trading Card Game available • D3 acquires Vicious in • Puzzle Quest June 2007
Game Engine • Vicious Engine Vicious Engine 2
87 2.4.3 Technical Specification Overview
Before comparing the technical specifications of the various MMOG middleware, it would be useful if not essential to understand overall architecture of an MMOG. It is important to know that there is not any single best or standard solution for the MMOG architecture. The overall architecture will vary from developer to developer, however almost all the solutions are variations of a single generic approach with the emphasis on reliability, scalability and maintainability.
Architecture of Massively Multiplayer Online Games
Figure 2.6 below illustrates the overall architecture of an MMOG.
Compiled from Various Sources; Richard E. Bartle “Designing Virtual Worlds” New Riders Publishing, US, and Stadjan Bogojevic and Mohsen Kazemzadeh, “The Architecture of Massive Multiplayer Online Games” http://graphics.cs.lth.se/theses/projects/mmogarch/som.pdf
88 User Database The user database is powerful software and is most central to the system. The database consists of records of all the registered players of the MMOG. Before a player can access any game content, they must first log in to the database through the login services. Other parts of the system such as billing and customer service management also have access to the user database.
Client Players have various options to connect to the MMOG e.g. PC, Macintosh, console or mobile. A client has to be installed on the player’s operating system and it acts as the player’s window in to the virtual world. The client will all present to the different users the same user interface as the virtual world neither knows nor cares what operating systems they are running under. Since the client is what finally presents to player on the look and feel of the MMOG it becomes an important aspect of the game design.
Server In information technology, a server an application program that accepts connections in order to service requests by sending back responses. In MMOG terms the game server essentially serves the game client. Data is sent from the client to the server. The server then processes the data and sends it back out to the client or clients. However, MMOG’s usually consists of more than one instance of virtual world at a time. This is achieved by the use of server clusters wherein individual clients are connected to individual sub servers. In hardware terms a server cluster would mean a number of PC’s connected over a local area network.
MMOG Middleware Technology
Middleware plays an important role in the development of next-generation MMOGs, which must be built on platforms that address not only the service
89 aspect, but also code maintainability and development for programmers.The MMOG middleware provides a suite of visual development tools in addition to reusable software components. These tools are generally provided in an integrated development environment to enable simplified, rapid development and maintainability of MMOGs in a data-driven manner. In the business sense of the term, the middleware provides a flexible and reusable software platform which provides all the core functionality needed, right out of the box, to develop a MMOG application while reducing costs, complexities, and time-to-market factors.
Table 2.3 shows the technical specification overview of the direct competitors.
90 Table 2.3 Technical Specification Overview
91
92 93
BigWorld Technology Suite – BigWorld Technology Tag Line: The Complete MMOG Solution “Making MMOG development easy and less risky is what we are all about,” Robert Spencer – BigWorld’s Strategic Business Manager at E3, 2006
The BigWorld Technology suite essentially includes the following four components.
BigWorld Server The BigWorld Server infrastructure essentially utilizes a real time load balancing system. This means that individual server components are dynamically reassigned as required ensuring lower hosting costs. If an individual server goes online the load is automatically balanced across the system to ensure smooth ongoing operation. BigWorld Server also incorporates multiple fault tolerant systems to minimize the potential impact of hardware failure and downstream disruption of game play.
The server package also includes several “Server Management and Monitoring tools”. These tools are provided to assist in managing the BigWorld Server.
BigWorld Client The client engine includes a 3D engine and has designed with a modular structure to facilitate the integration of externally developed engines such as physics or AI engine. The programming languages used in the client are Python and XML. Other features include a terrain system, day/night cycle, climate simulation, sky, dynamic scenery loading, lighting, water, mobile spaces & vehicles, animation blending, morph blending, animation sequencing, entity path interpolation ,biped physics, animation blending, per pixel shading, normal & displacement mapping, heat shimmer and blooming.
94 Content Creation Tools This tool provides a MMOG content creation system for the production of game assets for a large team. The content creation tool incorporates a world editor, model editor and particle editor.
BigWorld Instrumentation This tool allows game developers to collect and analyze game data.
HeroEngine – Simutronics Inc Tag Line – MMO Development at Light Speed. The Ultimate MMO Platform
“Our niche is that it enables highly collaborative work environments”, CEO David Whatley on the HeroEngine.
The HeroEngine essentially includes a client, server platform, game development platform and a back office solution for billing and customer service.
Area Systems – HeroEngine Server The server is designed to distribute load over a server cluster, auto balancing as demand shifts. The server side logic process can be organized in several ways to achieve different performance profiles. Each area server (cluster) can process its geographic region or a collection of services.
It also includes a server management tool and is used for the centralized monitoring and control of the servers.
HeroBlade – Hero Engine Client, Content Creation tool and Dream Manager The HeroBlade is a world and game building tool and it helps to manage the process of game development, project management and play testing. The HeroBlade has been featured as an all in one tool and it includes world building,
95 character system, animation system and an effects system. The programming language used in the Hero Blade is called the Hero Script which has been designed in house as opposed to the Python script used in the industry.
The Dream Manager is a hierarchical team-based task management system focused on organizing the personal in the various game development departments.
The repository system is capable of saving all the game content data and deliver to clients and servers on demand. This tool is essentially aimed at replacing the slow and awkward patching systems currently used in MMOGs.
Icarus RAD Tool Suite - Icarus
“Calling the Icarus platform “middleware” is kind of like calling a super carrier a rowboat. Ours is a complete system for building, hosting and managing virtual worlds and MMOs”, David Gardner, Vice President, Icarus Studios.
Server
The Icarus platform is based on a “chimeric” model, which allows any server to take on the role of any other server in the event of a hardware failure, or to compensate for server resource shortfalls due to changing system needs. A concept of “self-healing” is followed where the network architecture compensates for hardware failures by automatically allocating new reserve machines to take over the role of failed hardware.
96 Icarus World Editor Tool
The Icarus World editor allows users to modify the physical layout of the virtual world through the use of a user interface. Icarus claims that the world editor requires no programming experience to allowing anyone to create and make adjustments to the virtual worlds.
Content Creation Tools
The Icarus Tool Platform features eight content creation tools in great detail. These include Icarus Bone bender for animations, , Icarus Ecosys editor to manage environmental data, Icarus head editor to create custom heads, Icarus level prep to prepare interior spaces, particle editor to create particle effects, Icarus sound prep to manage audio systems, Icarus vehicle editor to create custom vehicles,
Customer Support tools and Billing Solutions
As the name implies these tools are focused on customer support and billing. The billing solutions however are provided by Aria systems with whom Icarus has partnered with to integrate this solution in to the Icarus platform.
Multiverse Technology Platform – Multiverse Networks
Tag Line: Changing the Virtual World
The Multiverse technology platform includes the Multiverse server, Multiverse client, Mulitverse plug-ins and customer services infrastructure.
97 Multiverse Servers The Multiverse server includes dynamic server-side load-balancing, enabling developers to implement a virtual world. Developers can choose to build instances, zones, or shards, depending on the game requirements. The servers are written in Java and are customizable using Java, JavaScript, or Python.
Multiverse Client
The highlight of the Multiverse platform is the use of a single client which runs on the player's computer and enables it to connect to any virtual world built on the Multiverse platform. The client contains a 3D rendering engine with client-side network infrastructure and event processing technology. Additionally, each game world can customize the client with user interface elements defined by XML files, custom graphics, and event-handling scripts written in Python. The client can be further extended with native plug-ins written in C#. . Multiverse Plug-Ins Multiverse provides a set of pre-coded server plug-ins for defining mobs (creatures), quests, combat, skills and abilities, among other behaviours. These plug-ins are customizable and optional therefore giving the developers the ability to change or replace them.
Customer Services Infrastructure The Customer Services Infrastructure provides the technology for customer services, including: user registration and authentication, systems for rating content, messaging, transaction processing, accounting, billing, and credit card processing.
98 Kaneva Game Platform - Kaneva Inc The Kaneva Game Platform (KGP) is the game development solution from Kaneva, Inc., designed for end-to-end MMO game (MMOG) development for FPS and RPG genres.
Kaneva Game Server
The Kaneva Game Platform provides a game design and runtime environment to create and run MMO games. KGP utilizes patent-pending blade architecture for function-specific engines that allow for third-party or custom enhancements.
Kaneva Game Client
The Kaneva client has an integrated 3D graphics engine, physics engine, software update system, and a scalable, secure communication layer and customizable controls for custom actions.
Kaneva Game Studio
Kaneva Game Studio may be used to create virtual worlds, as well as modify and extend any existing game worlds and simulations. The editor imports art assets from 3DS Max, as well as a variety of Ogre-compatible applications, such as Maya and Blender.
Artificial Intelligence (AI)
The Kaneva AI component provides support for Non-Player Characters (NPCs).
99 Emergent Elements - Emergent Game Technologies
“The biggest area Emergent is working on is customization, allowing game engines to be customized by developers to create very unique looking games”. Interview with Geoffery Selzer on MMO games.
Emergent Elements consist of cross-platform solutions for game developers. The elements essentially provide tools required to build, test and manage games. Emergent also recently announced the development of the beta version of Emergent Platform which is a middleware for making MMOGs.
Gamebryo Element
The Gamebryo element is a 3D engine. The 3D engine has been designed to work with various platforms including the XBox 360 and the Play Station 3.
Metrics Element
Metrics Element is a data management solution with the primary focus on improving decision making during game development.
Automation element
The Automation Element is essentially a testing tool for game development. It essentially focus on aspects of testing such as build testing, load testing, regression testing, synchronized multiplayer testing and performance & compatibility testing.
Emergent Platform Beta Emergent Platform will include a scalable server engine which has server management tools, an online version of Metrics Element and pipeline automation. The billing and customer management will be handled by the Aria Systems module. They have also partnered with HP Computers to offer game hosting services.
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Summary of Middleware Technology
From a technology view point the various MMOG middleware currently available in the market are built with the intent of making MMOG development easier, faster and cheaper. However, the focus and the selling proposition vary from middleware supplier to supplier. For instance BigWorld looks at its product as a solution that would make development of games less risky and easier.
Meanwhile HeroEngine’s emphasis on its solution is based on offering a highly collaborative work environment. The possible module to pay attention on would thus be the Dream Manger which communicates with the other modules available and help organize the various game development departments. Though BigWorld Technology does not speak of a separate tool set like Dream Manager it does point out that all its tools have been designed for co-operative production of game assets in a large team environment.
The Icarus platform technology offering is that of a “complete system” for building, hosting and managing virtual worlds and MMOGs. If one were to look at the Icarus website, it can be seen that the company has presented separate sections for Customer Service and Billing solutions tools. A closer look at the billing solution provided by Icarus shows us that the billing module is essentially provided by a third party developer.
Again, BigWorld Technology, though it has not mentioned billing solution anywhere on its technology brochure includes Aria systems in its list of business partners. BigWorld Technology essentially works on the policy that whenever a game developer requests for a new feature or third party tool, the former enters in to licensing agreements with third party developer to integrate the solution in to the middleware platform. The modular structure of the various middleware platforms thus gives the opportunity to integrate or reject the tools that the
101 middleware platform provides. This essentially gives the leverage to the game developers to purchase a customizable solution based on their requirement.
As mentioned before in the MMOG architecture section the architecture for an MMOG varies from developer to developer. The same is true for middleware developers; however the various solutions are variations of a single generic approach with emphasis on reliability, scalability and maintainability. The various middleware developers provide different features in their products that are aimed to achieve these factors. The number of players for any MMOG varies from time to time. The running costs, maintenance, security and smooth operation of the game system are important factors in MMOG success. For instance load balancing provided by Multiverse, where players are assigned across servers and constantly adjusted to balance resources, is an essential feature that is provided in other middlewares reviewed in the list as well. Multiple fault tolerant systems provided by Big World Server, the self healing design provided by Icarus server and the server management tool included in the Hero Engine Server systems are features that are focused on minimizing the impact of hardware failure and downstream disruption of game play.
However, while most of the products are generic in solution, the idea behind the Multiverse platform is quite unique. The Multiverse platform boasts of bringing all the consumers together through the use of one client.
Also Multiverse and Kaneva have provided the middleware free of charge to the game developer communityt. This lowers the barrier to entry in the industry enabling game developers to create a virtual world quickly without any upfront cost .It would be right to say that these businesses are technologically driven. Kaneva in a statement has indicated that the Kaneva Game platform is the core component of its business model. However, it remains to be seen how these platforms would evolve in time through the efforts of their game developer community.
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Emergent Game Technology is quite well known in the market for its 3D rendering game engine. The Gamebryo Element has been widely used by several well known game developers to produce hits such as the Elder Scrolls 4 . The engine has also been used by Mythic Entertainment in their MMORPG, The Dark Age of Camelot .
Currently, numerous middleware are available in the market. Most of these products claim to cut the game development time by half so that the game developers can concentrate more on game design and development. However, the question to be answered is how game developers go on about selecting a middleware. According to Joe Ludwig of Flying Labs Software, a game development company there are five important tips to keep in mind while selecting a middleware.
These are:
1. Availability of source code – The source code is essentially required for debugging more than modifying. 2. Evaluate the middleware supplier – Apart from supplying the middleware the serviceability aspect is also an important factor for game developers. 3. Including other personal from the game development team like artists, sound designers and operations apart from the programmers themselves. 4. Evaluation time provided by middleware supplier to evaluate the product. 5. Evaluate the technology for what it is and not based on what it promises.
103 2.4.3. Licensing Information
Table 2.3 License Summary
Company License Remarks BigWorld Pty Commercial Combination of upfront fees and back end royalty. Simutronic Prototype & Limited time to test or build prototype based on full Corp. Evaluation HeroEngine including full support and training. Basic License for executable code for basic HeroEngine including full training and support. Source Code Everything in Basic license plus full access to complete source code. Option to include specialized module licenses. Monumental Prototype Full use of MTS for development purposes not Games including training & support. Production (No upfront fees + 25% back end royalty) – requires Commercial license for launch. Commercial Full use of MTS including support and training (£150,000 upfront fees + 5% back end royalty) – requires Commercial license of launch License to launch (£150,000). Icarus Studios Commercial No upfront fees but has a back end royalty. Kaneva Free to use Used for development purpose (No upfront fees). Commercial License to launch.
104 Company License Remarks Multiverse Free to use Used for development purpose (No upfront fees). Commercial License to launch (up to 10% gross revenue + transaction costs). Emergent Game Unavailable Pay-as-you-go. Tech. Perpetual Unavailable Entertainment NiceTech Not available for licensing Linden Labs Free to use Access to source code of viewer in Second life for personal use. Commercial License to use viewer for commercial purposes.
Fig: 2.7 Middleware Access Requirement
Access Requirement Matrix
Icarus Commercial BigWorld Commercial
needed Assessment Monumental Games Prototype HeroEngine Source Code * Emergent Platform Beta HeroEngine Basic (cheaper than Source Code)
HeroEngine Prototype and Evaluation Monumental Games Production * Emergent Tech Platform Beta * Perpetual Entertainment Commercial assessment No
Multiverse Development Kit Kaneva Game Platform
No upfront fees Upfront fees required * Assumption
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The above figure is the access requirement matrix for eight competitors which basically shows what a game developer is required to produce/have in order to gain access to the middleware. Gaining access means a developer acquire the middleware and start developing their game/world. On the bottom axis the matrix is divided into two. Upfront fees are payment made to the middleware firm in order to get and use the product. Some firms do not require upfront fees to release the middleware, but this is usually compensated by other arrangements, for instance back-end royalties. On the upright axis, the matrix is divided on whether game developers need to go through assessment of any sort before gaining access to the middleware. Assessment could be interviews or contact with the firm representative. No assessment basically means it is free to download direct from the middleware company website.
Due to lack of data, a calculated assumption has been made on two firms. Emergent Technologies has announced their Emergent Platform is going to be based on the pay-as-you-go model. It could mean that the middleware could be offered with little or no upfront fees to approved game developers. Perpetual Entertainment does not disclose their access options online or at any other source researched. We assume that Perpetual Entertainment will have similar licensing options to BigWorld based on their website ‘message’ and the size of their customers (Bioware, Austin).
NiceTech’s AliceServer is not available for licensing and or external use. Game developers will not be able to gain access to the middleware so it is not represented on the matrix.
Linden Labs also does not license their middleware. The company has however made available to public the source code for the viewer software used in its virtual world, Second Life. This essentially allows developers to make
106 modifications, enhancements and to add new features to the virtual world created by the company
Assessment needed / No upfront fees Icarus Studios will release their middleware to approved customers without any upfront costs. Customers however will have to pay royalties when the game is successfully commercialized. Customers also have the option to reduce royalty percentage by paying some upfront fees.
Monumental Games will also release their middleware to approved customers at no cost with their Prototype license. However, customers are required to purchase the commercial license and pay royalties once the game has been successfully commercialized with options to buy back royalty points.
Based on their recent press release, Emergent could have a license in this category.
No assessment / No upfront fees Multiverse Networks offer their middleware free on their website after customers register themselves on the network. The registration is automatic and no evaluation is required. Once a game brings in revenue, the developer has the option of revenue sharing or paying an upfront fee to Multiverse.
Kaneva offers their middleware which is freely downloadable on their website for the public to use. Game developers will have to get a license from Kaneva if they want to commercialise their game.
Assessment needed / Upfront fees required BigWorld Tech Suite is only available on a commercial license. BigWorld stressed that their middleware is a non-hobbyist solution and developers are expected to pay a commensurate amount for it.
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Simutronics HeroEngine is available on three licensing options. The Basic license offers only the executable code for the basic HeroEngine and licenses for other specialized modules are not included. The Source Code license provides everything in the Basic license plus access to the complete source code. Developers also have the option to license the right to create new modules and capabilities. Simutronics also provide a Prototype and Evaluation that offers developers a time limited use of the middleware with full support and training
Monumental Tech Suite is available on their Production license which is for development purpose only. Developers will have to get the Commercial license in order to commercialize their game once their game has been fully developed.
Based on their pay-as-you-go model, Emergent’s middleware could be available in this category.
Based on assumptions previously made, Perpetual would have a commercial license format.
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2.5 Middleware Industry Summary and Future
From our previous review and analysis, we believe that the middleware development industry is a challenging one for new entrants due to that the industry factors are not favourable mainly due to the power of the suppliers and the relative high rivalry between the existing companies in the market.
The implication is that for organisations that are already established in the industry, the threat of new entrants is low. They still have to face the other factors and strategically plan to acquire a position and maintain it to be able to prosper in the future. A combination of offensive and defensive strategies is essential for the survival and prosperity of the company and all other competitors in this industry.
The middleware in itself does provide the developers with a solution that makes MMO development easier by reducing risks and costs. However, having access to the technology itself does not guarantee the success of an MMOG. Other aspects of business such as operations, finance, publishing etc need to be addressed in this regard. Consulting services offered by some of the middleware suppliers does provide an added value to the developers.
The different types of licensing strategies offered by the middleware suppliers does seem to be an indication of the different target markets the companies are focused on. The companies that provide commercial licensees with a high level of developer evaluation are an indication that the target market for the former are experienced game studios. Conversely, the free to license products focus on hobbyists and smaller game studios by reducing the barriers to entry. However, it has to be kept in mind that the royalties attached to such offerings is high which cuts down the profitability for the developers once the game is launched. A mix of the above two strategies by the newer middleware suppliers is an indicative of a strategy that focuses on a wider range of customers.
109 There has been a mixed reaction from the indirect competitors with regards to entering the MMOG middleware industry. Emergent Technologies, for instance who has been an indirect competitor has banked on its past success and entered the MMOG middleware market with its new product offering, the Emergent Platform. Conversely, id Software’s management states that they do not see themselves entering the MMOG middleware market anytime soon. However, the fact remains that the indirect competitors have the resources and capabilities to develop a MMOG middleware and represent a threat to current firms in the industry.
Future Due to the lack of reliable literature and industry publications that forecast the future of the middleware industry are available, our conclusion would be based on two points; the first being the relation between the publishers, developers and middleware industries. The other is the possibilities and potential of MMOG middleware.
As previously mentioned, the middleware industry is currently reliant on the MMOG publishers’ intentions of launching games. This filters down to the developers who actually create the MMOG. Therefore, as the available forecasts predict a stable increase in the number of online gamers and MMOGs launched (refer to chapter 4) this means that the developers would increase their production of new games. In addition, the gamers are increasingly requesting diversification from the dominant genre of MMORPG to science fiction, sports and other MMOs. These two factors would increase the demand for higher quality and advanced middleware to meet the demand by the market in order to launch hit games in the market so that the publishers would be able to reap the gains from the markets. The exact figures and numbers of the potential market value and the company’s potential share and profits from this increase in demand are unavailable and we are not comfortable estimating such figures as we have neither the basis (i.e. historical data) or the experience in the industry to do so.
110 The more important point is the future potentials and possibilities of the current technology of the middleware to be used in developing simulation worlds. These simulations could be for military, education, media, entertainment and other purposes. The strategy has been applied by the indirect competitors with several firms (i.e. Vicious Cycle and Instinct Technology) diversifying into non-gaming applications.
This application has the possibility of being very profitable to the industry especially as the governmental spending (direct and indirect) is growing (e.g. The United States of America’s “American Competitiveness Initiative”).
A lesson from history is that technological breakthroughs (whether innovative or technology enhancement) came out mainly from military and defence uses or applications. The amount of governmental spending on military application – yet not possible to verify accurately – is believed to be a significant portion of industrialised (western world) and emerging (China, Russia, India and Brazil) countries annual spending budgets which makes it feasible for the middleware firms to attract and tap into these significant sources of revenue.
2.6 Middleware Industry Business Model
Using the framework proposed by Hedman & Kalling (2003), the generic business model of a MMOG middleware firm is shown below.
111 112
For the purpose of this analysis, the business model concentrates only on the middleware product and services, which are for the purpose of creating MMOGs and virtual worlds. As described earlier in the literature review, Hedman & Kalling’s framework consists of seven business components.
The first two components are the customers and competition which are part of the market/industry analysis. Firms will aim to acquire and retain customers by delivering more value at lower cost than its competitors. There are basically two groups of customers. The first group are ones which are involved directly in the production of MMOGs itself; which are the game developers and publisher. This group constitutes as the main source of clientele and revenue for middleware firms and as such, an important factor in the business model. The other group of customers would be parties that could use the middleware for non-gaming applications, such as the military, health, government and media. Currently this group are much smaller in terms of quantity and revenue when compared to the first, but could be potentially a huge market in the future.
There are also two groups of competitors. The first are direct competitors who have similar offerings (MMOG middleware) and targets the same group of customers. The other would be indirect competitors who currently offer ‘specialized components’ to MMOG developers and publishers. This group has the potential to leverage their technical expertise to enter the industry and thus should be considered as competitors in the business model.
The third component is the offering which is essentially what products and services the middleware firm offers the market. This consists of the physical, service and price/cost aspect of the offering. The physical aspect would be the middleware itself, which could consist of the server, engine, content creation &
113 management, billing and any other tools required to build a MMOG/virtual world. The service aspect would be the additional support offered in parallel with the physical part. Supports would include customer service, maintenance, training and documentation. The price/cost aspect would be the licensing and pricing options for the products and services offered. Depending on the firm, licensing options could include the commercial, non-commercial, free-to-use and evaluation licenses. Each option would have a different pricing terms and conditions.
The fourth component would be internal to the firm itself, specifically on the organisational and activity level. This component describes the value chain configuration needed to operate the firm.
The fifth component is the resources that are needed to produce the products and services a middleware firms offers. This consists of human, physical and organisation resource. For human resource, a typical firm would have three tiers of personnel. The first would be the top management (CEO, CFO etc), the second are middle managers (Project managers, department heads etc) and the are third project teams and individuals (specialists, programming, support etc). Physical resources would include the computer hardware and software needed to produce the middleware. Organisational resources are the necessary infrastructure needed for the firm to operate, such as office space and networking facilities.
The sixth component is the ‘suppliers’ to the middleware industry. Suppliers would include labour market and production input.
114 Chapter 3– Monumental Game Limited
A UK based middleware technology and MMOG developers founded in 2005.
The company develops, licences and markets a middleware used in the development of MMOG, Monumental Technology Suite (MTS).
MTS also allows developers to create online products for a wide range of target applications (i.e. virtual simulations for the media, education, military, research and training industries).
Currently, Monumental Games are engaged in several projects varying from licensing their middleware technology (MTS) to MMOG game development.
3.1. Company Overview
1- MG Objectives, Mission Statement and Vision:
Due to the fast pace of the company’s growth and the nature of the industry in which it operates, it was stated that till date, the company has not officially documented its organizational charts, objectives, vision, mission statement, strategies, marketing initiatives & strategies, human resource policies and procedures, accounting and finance, lines of authority and responsibility, reporting procedures, processes documentation, process flows etc.
Yet it seems that there is a common understanding of what the company objectives are and how it is going to achieve these aims.
The company is currently in the process of producing such documentation.
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i. The core objective of the company is to be a premier MMOG developer and publisher.
ii. The secondary objective is the development of a Middleware platform that would be well established in the market.
iii. They aim to be bought out or going public (IPO) within 2-3 years
2- The founders of the company understood the problems facing the industry and believe that they have the required solutions through their expertise, skills, established contacts in the market and industry and available technology which have a good potential in the market to build on.
3- The company’s structure is basically project based, yet as they are currently focused on one project at this time (Football SuperStar) it does not show in their current structure which is as follows:
116 Figure 3.1: Monumental Games Ltd. Structure
Non Exec. Owners CEO BOD
Operations Code Design Art Publishing Middleware Department Department Department Department Department
Office Chief Development Creative Business Middleware
Manager Technical Director Director Development Director
Officer Director
IT Manager Technical Lead Art Team Internet Team Aids Designer Leaders Manager leaders
Team Team Members Members
The structure illustrated above is the currently used structure as it has one project at the time. Upon the initialization of the next project, the structure of the first two layers (CEO and Departments) would stay the same as the high management of the company responsible for the overall operations of the company (the current directors – CTO, creative director etc. layer would become the second layer of the structure) and the layer containing the team leaders and team members would be cloned (with the exception of the Middleware and operations departments which would stay as general support for the entire group) for each new project and possibly be separated into separate entities.
117 The company’s employees are hired with the expertise and skills required for the industry in which the company operates in. The management personnel are highly experienced, skilled and come from well established and known companies that operated in the industry for a relatively long period of time.
4- Roles of the different departments are as follows:
a- Code Department is responsible to manage the development and programming aspects.
b- Design Department is responsible of the layout of the game tools, environment and items of the game.
c- Art Department is responsible for the creation of the 3D, icons, graphics and artistic aspect of the game.
d- Publishing Department is responsible for the marketing, Public Relations management, strategic planning and supplier/customer relations management.
e- Middleware department would have to leverage support for the games, establish and maintain a technology roadmap and currently be the customer support.
5- Each project needs an average of 40 employees working on the project itself and additional staff for customer support upon launch of the new game, the customer support employees are expected to be of a high number.
6- For developing a new game, the following processes occur:
118 a- The proposal planning stage; where the CEO, CTO, Development, Creative and Business Development directors prepare proposals for the new product and design the business case.
b- The business case and proposal are sent to publishers in order to attract investment in the new product/game.
c- Upon obtaining of the funding, the development of the game starts.
d- An Alpha version is launched when all the major details are finalized. A Beta launch is made (typically a population of 200 players are selected) for the purpose of finding errors and fixing details. Other launches are made for bigger population are made afterwards.
e- Upon final launch of the game, a separate team is set up to support the game.
7- Current major accomplishments for the company are:
a- Achievement of GBP 1 million of turnover in the first 12 months of operations.
b- Sealing licensing deals for its middleware.
c- The signing of the “Football SuperStars” game.
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8- The next steps for the company include:
a- Having a portfolio of developed and operating games in the market.
b- Re-investing the revenues in new projects.
c- Establishing a name in the market known for being good at what they do and respected for providing good products for reasonable prices.
d- To be ready for a buyout or IPO in 2-3 years.
9- The company considers the following to be their major strengths:
a- Already having the middleware to be used in the development of games which clearly provides an advantage over the competitors in terms of time and costs.
b- The skills of the employees and management teams that was obtained through intensive experience in the market and industry.
c- Previously established contacts in the market.
10- The company considers the following to be their major weaknesses:
a- Available resources are currently stretched thin between the middleware and game development which does not allow a margin for emergencies or errors.
120 b- The rate of growth was high which could result in a loss of focus over the objectives of the company and its operations.
c- The company, its management and employees have no experience in launching a game.
d- The company does not have a middleware development department specialized in commercializing its middleware.
e- The availability of required skills are scarce and the company needs to offer extremely handsome packages to attract the needed skills from other companies/competitors.
11- The current marketing strategy of the company is mainly a differentiation strategy. The focus is on to differentiate the company from other competitors through building up their respect and reputation in the market.
Their philosophy is basically; if the game is good then the studio that created it is good and therefore the reputation of launching good games becomes better and therefore investments for new games would be easier to attract.
The company is also focused on Business to Business (B2B) operation and consider the MMO games industry/market as the new hot thing in town that has a massive future.
Marketing channels are mainly press releases, industry conventions, setting up and maintaining relationships with key players in the industry, trade events, generating demos that appeal to the viewers and establishing a new web site that can be considered a state of art and technology.
121 In addition, the company is considering partnerships with publishers that have an established network of suppliers and customers in which the company would retain its individuality of producing games and use the publishers network of retailers to get their products in the market directly without the need to establish new relationships and the problems accompanying that in addition to establishing the relationships with the retailers in the early stages with relatively low risk and building on that till the company is able to go into direct commercial relationships with the retailers.
12- When the company announced the launch of the Beta version of “Football SuperStars”, it was meant for the UK market only. The feedback the company received and applications to be part of the Beta launch was 80% offshore.
This forced the company to reset its initial targeted market to include France, Germany and Spain in addition to the UK & Ireland.
This also put additional pressure on the company mainly the languages that were not yet set in the game to accommodate the new three languages.
13- The short term plan of the company is to become a major MMO games industry player through focusing on producing good games using their Middleware for the next year. For the second year the company is intending to diversify into non-MMOG applications such as military, academic and entertainment sectors usage.
14- Although many procedural processes are not documented, the company performs regular meetings to discuss current and future strategies, team
122 leaders’ meetings to discuss current issues and departmental meetings to ensure that milestones’ updates are being communicated properly.
3.2. Internal Environment Analysis The following analysis of the internal environment of the company is essential to understand its strengths, areas of improvement, potential opportunities and future challenges that should be exploited or avoided to ensure success in the industries in which it operates in.
Company Strengths:
1- Possession of ready to use developed MMO middleware.
2- Possesses the required employees skills set.
3- The experience, knowledge and market contacts of the key management personal.
4- Highly motivated and knowledgeable staff.
5- Location in the UK and close proximity to the European market.
Areas of Improvement:
1- Stretched resources between middleware and MMO development.
2- The fast growth rate although good for the company performance might cause a loss of focus on what is important and the objectives to meet.
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3- The company has never launched a game and is inexperienced in doing so.
4- Currently there is no separate department specialised in middleware commercialising and development.
5- Lack of processes documentation.
6- As the company is young and new, it has yet to establish its reputation and products’ brand.
7- Accessibility to retailers network is limited and for the launch of the coming game the assistance of a third party to access the retailers and distribution channels.
Market Opportunities:
1- Entering new segments of the market such as casual games, non MMO games and consoles’ games to diversify the company’s products and mitigate the risks from focusing on one segment of the market.
2- Targeting the non-MMOG applications of the company’s middleware.
3- Leading an initiative to bring together the middleware competitors to meet regularly and discuss the current and future market and industry issues and trends.
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Future Challenges:
1- Availability of human resources with the required skills set.
2- Legislations against certain MMOGs might limit the types of games the company would consider profitable to develop.
3- The possibility of MMOG market/industry collapse after a relatively low number of launch success or games failures.
4- The high number of entities operating in the relevant industries (i.e. Middleware, game development and publishing) increases the rivalry between them to develop and launch a highly successful title which in turn filters to the risk level assessment of the industry and market making it a high risk investment and requiring high rates of return by the potential investors.
3.3. Summary
Monumental Games currently operate in two interrelated industries (i.e. Middleware and MMOG development) which are both heavily reliant on the MMOG industry – and therefore reliant on the MMOG publishers.
The MMOG industry is currently in the life cycle phase of growing in both the market size and value which we think the company should take advantage of in order for it to grow and harvest the benefit of this new market segment of the entertainment industry.
The company currently has a set of strengths that they have achieved through the management and staff earlier experiences in the middleware and game
125 development industries which procured the required rare skill sets to operate effectively and efficiently in the market.
This experience has provided the company with the knowledge and contacts within the market to help it in achieving the goals and objectives set by the founders.
Having a middleware in the early stage of the company’s life helped it in entering the middleware technology market with ease in addition of not having to rely on external middleware providers for developing their MMO game.
Having the required skills sets and technology is beneficial for the company’s next step of penetrating the non MMOG applications (i.e. virtual simulations for the media, education, military, research and training industries) of the current middleware technology the company already has.
In addition, the company has an opportunity to diversify into traditional gaming industry segments such as PC and console video games in addition to casual MMO games.
During our research and data gathering, we have witnessed resistance from middleware industry competitors sharing information they considered sensitive enough not to furnish for research purposes. This provides Monumental Games with the opportunity to be the leader in building a network between the competitors to share information and collaborate to achieve better technological advancements for the greater good of all parties from the middleware developers to the end user of the MMOGs.
On the other hand, and due to the fast pace of growth the company has witnessed, we believe that the company might have over stretched its resources
126 between middleware development and MMO game development which could compromise the company’s focus over its mission and objective.
In addition, the company has never launched a MMO game before and they lack the experience and accessibility to the supply chain network which is critical for the success of the title and the reputation the company is seeking to establish in order to success in the market.
We believe that the company should work on the previously mentioned areas of improvement and use their current strengths and opportunities to minimise the effect of future challenges.
127 Chapter 4– Massively Multiplayer Online Gaming
Industry
4.1. Industry Overview Definition:
MMOG is a video game which is capable of supporting a large number of players simultaneously. We were unable to find a consensus over the minimum number of players required to be considered “Massive”. On the other hand a factor that is required for the game to become MMOG is the existence of at least one persistent world.
MMOGs cover many genres but the most dominant genre is the MMORPG (massively multiplayer online role play game) like World of Warcraft and Lord Of The Rings Online.
MMOGs usually require players to invest large amounts of their time into the game and most require a monthly subscription fees although some are free.
The debuts of Meridian 59 (The first 3D MMOG), Ultima Online, Underlight and EverQuest in the late 1990s popularised the MMORPG genre.
There has been a number of console based MMOGs including EverQuest Online Adventures (PS2) and the multiconsole Final Fantasy XI.
128 Types of MMO games:
1- Massively multiplayer online role-playing game (MMORPG)
2- Massively multiplayer online first-person shooter (MMOFPS)
3- Massively multiplayer online real-time strategy (MMORTS)
4- Massively multiplayer online dance game (MMODG)
5- Massively multiplayer online manager game (MMOMG)
6- Massively multiplayer online racing (MMOR)
7- Massively multiplayer online tycoon game (MMOTG)
8- Massively multiplayer online sports game (MMOSG)
9- Massively multiplayer online virtual sex game (MMOVSG)
10- Massively multiplayer collaborative art projects (MMCAP)
11- Real World Simulations.
Publishers Overview:
A video game publisher is a company that publishes video games that they have been either developed through owned studios or by an independent video game developer.
Video game publishers are responsible for their products’ manufacturing and marketing – including market research and advertising.
As the publishers finance the development stage, they try to manage the risk associated with the business through project management to monitor the progress of the developer and assist when and as necessary.
129 Most created video games developed externally are paid for through periodic advances against royalty fees which are made at pre-set milestones of development.
Business Risks:
“Risk” can be simply described as: What can go wrong in the process? This definition can be extended to include: What should be done in the process but is not?
As in any other business and/or industry, publishing video games has its own risks. The major business risks for the industry can be summarised as follows:
1- The Christmas holiday season is a major contributor of the industry’s annual sales of video and computer games leading to a concentrated accumulation of high quality competition.
2- Product “Slippage” is when the publishers have a “false launch” in which the developer has stated that the game would be ready for launch by a certain date; therefore, the publisher plans its marketing and advertisement campaign accordingly.
Subsequently, the developer declares that the game will be delayed and will need several additional months to be completed for launch.
By the time the game is completed and launched, the intended effect of the marketing campaign over the consumers of releasing a brand new game has vanished either due to the long time of anticipation or the release of a new game by the competition.
130 These problems are magnified if the game is supposed to ship overseas or was timed to be launched at the peak period of sales of Christmas but slipped into the subsequent year.
Some developers (such as Valve and Blizzard) mitigate this risk by announcing that a certain game under development will be released “when it’s done” and would only announce the release/launch date when the game is forwarded to the manufacturing stage.
3- The high competition in the industry has driven it to become more focused on achieving hits as consumers’ demand is focused on the top games of each genre.
This focus led publishers to assign substantially higher budgets to ensure that they can afford the developers’ and marketing needs to ensure the success of their launched games.
4- The skill sets required for this particular industry are limited and long periods of time are required to forward the necessary skills to the next generation.
This leads to high competition over recruiting the individuals that have the skills and experience which makes the publishers more willing to offer handsome packages to obtain these skills and knowledge.
131 Top Video Game Publishers:
Table 4.1 displays the top 20 publishers – ranked by Game Developer Magazine in October 2006 – in order of the overall score of six factors; annual turnover, number of releases, average review score, quality of producers, reliability of milestone payments and the quality of staff pay and perks.
Table 4.1: Top 20 Publishers 2006 position Name of Publisher 1 Electronic Arts (EA) 2 Nintendo 3 Activision 4 Sierra Entertainment (owned by Vivendi) 5 Take-Two Interactive 6 Microsoft Game Studios (MGS) 7 THQ 8 Ubisoft 9 Konami 10 Sega 11 Namco Bandai 12 Sony Computer Entertainment (SCE) 13 Square Enix 14 Capcom 15 NCSoft 16 SCI/Eidos Interactive 17 LucasArts 18 Buena Vista Games 19 Atari 20 Midway Games Source: http://www.gamasutra.com/features/20070108/wilson_01.shtml
132 Some Notable former Publishers:
• Acclaim Entertainment • Accolade (acquired by Atari/Infogrames) • Atari (console manufacturer-acquired by Infogrames which renamed itself Atari) • Crystal Dynamics • Square Electronic Arts (Owned by Square and EA, folded back into Square Soft and merged with Enix to Square Enix) • Enix (Merged with Squaresoft as Square Enix) • Gathering of Developers (GOD) (bought by Take-Two Interactive) • Hasbro Interactive (acquired by Infogrames) • Infocom (acquired by Activision) • Microprose (acquired by Hasbro) • Origin Systems (acquired by EA) • Spectrum Holobyte (acquired by Hasbro)
4.2. Macro Analysis
As part of the external influencing factors, it is beneficial to examine the macro environment surrounding the MMOG publishing industry. This analysis is divided into five factors: political, economical, social, technological and legal.
4.2.1. Political Factors
Political factors include political stability and governmental policies towards the MMOG publishing industry including governmental attitude towards tax,
133 employment, trade restrictions and technology transfer which were discussed previously.
Additional factors specific for the industry include controversies over specific games and games’ genres, ratings and addiction.
Most of the top 20 publishers operate in politically stable environment as most of the 20 companies operate in Europe, the United States and Japan which are considered politically stable.
One of the most important political factors in the video and computer games (including MMOG) industry is the rising concern over the controversial games. These include violence, racist, drug use, sexual content, alcohol consumption and propaganda games.
The history of the criticism and controversy starts as late as 1976 with the video game Death Race which required running over pedestrians to gain points.
The criticism is mainly led by parents’ groups, psychologists, religious organisations and politicians. The concerns led to adopting rating systems by the industry such as the ESRB in the United States and the PEGI in Europe which had the goal of informing parents of the games their children are playing or want to purchase in addition to enhance the image of the publishers regarding their concern of the welfare of their customers and to show that the publishers are not targeting the controversial games to the children.
These controversies limit the publishers’ abilities to publish certain games in certain genres or have to rate them as Adult games which would limit the numbers of users and players.
134 Another major factor that has a rising concern is the addiction of players – whether the player is susceptible to addiction or the games are designed to be addictive.
Revenue generation of an MMOG is mainly based on the monthly subscription the players are willing to pay; therefore, the publishers require sustaining the gamers as long as possible. This can be achieved by well designed and attractive games and future expansion pack releases.
Well designed and attractive games could result in an addiction by the players – whether the publisher intended the game to be addictive or the players’ have an addictive character – which required the intervention of pressure groups and governments. For example, China limited the players of MMOG to only three consecutive hours of play to combat the addiction to online role-playing games such as World of Warcraft and Lineage II in which the player’s character would suffer serious limitations of their character’s abilities and by the time of 5 hours consecutive playing, the characters are effectively severely limited (Source: BBC News 24)
4.2.2. Economical Factors
Economical factors to be considered during this analysis include the current and projected economic growth, inflation rates, interest rates, unemployment, level of disposable income, impact of globalisation, the impact of technological changes on the economy and the likely change of economic environment.
Additional factors specific for the industry include disposable income. Disposable income is a major factor in the MMOG publishing industry as it indicates the ability of individuals to spend more funds over leisure activities and products.
135 As shown in figures 4.1 and 4.2 below, the UK disposable income has increased over the period 1997-2005 as in the US for the past 3 years. This is an indication that the population is able to spend more funds that can be targeted by the MMOG publishers.
Figure 4.1: UK Disposable Income and Internet Access for the period 1997-2005
Source: BBC news 24
Figure 4.2: US Disposal Income graph for the period 2005- July 2007
136 4.2.3. Social Factors
Social factors that specifically affect the MMOG publishing industry include addiction, life style and “gold farming”.
Addiction over playing video games and MMORPGs started as a social factor and moved quickly to become a political factor due to the pressure groups work. This factor was discussed in the political factors section of this analysis.
Gold farming is a general term for an MMORPG player that acquires in-game items of value through exploiting repetitive elements of the game’s mechanism. This action is being commercialised by firms that hire employees to play the game and acquire items to be sold for other players for real world money.
This factor is also increasingly becoming a political and economic factors as various governments are considering taxing the income from such activities. On the other hand, taxing such income would mean that gold farming is legalised which is in direct conflict with most games’ EULA or terms and conditions.
The demographics of online gamers are predicted to witness a steady increase in the numbers of online gamers in general. Another factor in the changing demographics of gamers is the increased participation of non-traditional gamers (i.e. female and children gamers are increasing in numbers).
As shown in the figures below, we also noted that the numbers of hardcore online gamers is concentrated highly in Asia in comparison to the rest of the world. According to DFC Intelligence June 2006 Online Game Market Forecasts, the Asian hardcore online gamers consist 78% of the global number of hardcore players. The effects of these demographics would be discussed in further details in our conclusion.
137 Figure 4.3: DFC PC Online Gamers forecast 2001-2011/Asia
Source: DFC Intelligence Online Games Report 2006
Figure 4.4: DFC PC Online Gamers forecast 2001-2011/North America
Source: DFC Intelligence Online Games Report 2006
138
Figure 4.5: DFC PC Online Gamers forecast 2001-2011/Europe
Source: DFC Intelligence Online Games Report 2006
Figure 4.6: DFC PC Online Gamers forecast 2001-2011/Worldwide
Source: DFC Intelligence Online Games Report 2006
139
4.2.4. Technological Factors
On a macro level, the two major technical influences in online entertainment content are bandwidth and latency.
Latency describes the time it takes for packets of information to travel the networks in order to keep game machines in synch with one another.
Bandwidth describes the quantity of bits being sent in a given unit of time
For at least the next five years, latency and bandwidth issues will put limitations on the type of online game content that can be delivered.
Lag represents the number one obstacle to online game development and has inspired a wide range of innovations and techniques designed to minimize it.
It is unlikely that lag will be eliminated altogether, though various compression, prediction, and acceleration techniques have resulted in significantly faster games with less noticeable lag. An increase in bandwidth will increase the amount of information that can be transmitted at any one time resulting in a significantly faster and more responsive game and dramatically reducing lag.
140 Figure 4.7: DFC Worldwide Broadband forecast
Source: DFC Intelligence Online Games Report 2006
Forecasts for the number of households with high-speed “broadband” connections to the Internet are estimated to have significant growth over the next several years in particular in the Asian market.
141 4.3. Top 20 Publishers
Electronic Arts (EA) Established in 1982 by Trip Hawkins, it is an American developer, marketer, publisher and distributor of computer and video games based in Redwood, California. In the 1990s, EA began to expand by acquiring several successful developers and, as of the early 2000s, EA has become the world's largest third- party publisher, with a net revenue $ 3.129 billion for its fiscal year ended March 31, 2006. The company has also been the subject of criticism, most notably for its business tactics, employment policy and lack of innovation in its titles.
Sales Strategy Hawkins was determined to sell directly to retailers. Combined with the fact that Hawkins was pioneering new game brands, this made sales growth more challenging. Retailers wanted to buy known brands from existing distribution partners. Former CEO Larry Probest (currently Chairman of the Board) arrived as vice president of sales in 1984 and helped grow revenue to $18 million.
Probst expanded the sales team to create the largest sales force of any American game publisher. In December of 1986 David Gardner and Mark Lewis moved to the UK to open a European headquarters. Up until that point publishing of Electronic Arts Games, and the conversion of many of their games to compact cassette versions in Europe was handle by Ariolasoft.
Development Strategy Much of EA’s success, both in terms of sales and with regards to its stock market valuation, is due to its strategy of platform-agnostic development and the creation of strong multi-year franchises.
142 EA was the first publisher to release annual updates of its sports franchises - Madden , FIFA , NHL , NBA Live , Tiger Woods , etc. - with updated player rosters and small graphical and gameplay tweaks. This strategy proved so successful that it has been widely copied in the rest of the industry, with competitors like Konami and 2K Games releasing yearly updates of their sports games, and the majority of third-party publishers spreading their development across as many platforms as possible. EA also depends heavily on regular iterations of its many non-sports franchises like Need for Speed , Battlefield , The Sims , and Burnout . Recognizing the risk of franchise fatigue among consumers, EA announced in 2006 that it would concentrate more of its effort on creating new original intellectual properties.
Brand Architecture The following brands construct EA’s brand architecture: 1- EA (all non-sport titels) 2- EA Mythic (MMORPG titles) 3- EA Sports (Sports simulation) 4- EA Sports Big (sub-brand for extreme sports titles) 5- EA Casual Entertainment (Harry Potter, EA playground) 6- EA Mobile (mobile phone and iPod games, previously JAMDAT) 7- Pogo.com (online games site, with numerous EA brand tie-ins) 8- Maxis (Life simulation titles – Produces games with the “Sims” title such as SimCity and The Sims ) 9- EA operates the games channel on AOL.
143 Activision Established in 1979 in Santa Monica, California by Jim Levy and former Atari programmers David Crane, Larry Kaplan, Alan Miller and Bob Whitehead. It is the first independent developer and distributor of computer and video games.
In 1988 Activision started to get involved in other types of software besides video games such as business applications. As a result, it changed its corporate name to Mediagenic which is often mistaken to have purchased Activision.The decision of the company to be involved in various fields at the expense of video gaming proved unwise as Mediagenic filed for Chapter 11 in 1992.
After emerging from the bankruptcy crisis, Mediagenic officially changed its name back to Activision and moved the headquarter from the Silicon Valley to Southern California. It decided to only concentrate on video games and resumed making strategic acquisitions.
Acquisition 1997: Acquired CentreSoft Ltd (UK) and NBG Distribution (Germany) 1998: Pandemic Studios was founded with an equity investment by Activision and struck deals with Marvel Entertainment, Head Game Publishing, Disney Interactive, Lucas Arts Entertainment and CD Contact Data. 1999: Acquired Neversoft Entertainment and Expert Software 2000: Equity investment In Gray Matter Interactive Studios to develop the follow- up for Return to Castle Wolfenstein . 2001: Acquired Treyarch Invention LLC and rights to Colombia Pictures’ film Spider Man. 2002: Acquired Z-Axiz Ltd. And Luxoflux Corporation in addition to an equity investment in Infinity Ward (a newly formed studios comprised of 22 of the individuals who developed Medal of Honor: Allied Assault ).
144 2003:Multi-property publishing agreement with Dream Works SKG, partnership with Valve LLC and acquired both Infinity Ward (developers of Call of Duty ) and Shaba Games LLC.. 2005: Acquired Vicarious Visions, Toys for Bob and Beenox Inc. 2006: Acquired the publisher RedOctane Inc and secured the video game license from MGM interactive to produce James Bond based games.
Vivendi Games Established in 2000, Vivendi Games is a global developer, publisher and distributor of interactive entertainment. Vivendi Games is a 100% subsidiary of Vivendi SA and based in Los Angeles California.
The two most important divisions of Vivendi Games are Blizzard Entertainment and Sierra Entertainment.
Blizzard Entertainment Blizzard Entertainment was founded in 1991 as Silicon & Synapse by Michael Morhaime, Allen Adham and Frank Pearce. In 1994 it was acquired by Davidson & Associates (a distributor) for under $10 million.
Davidson was acquired by Sierra On-line which was acquired by CUC International in 1996 which later on merged with HFS Corporation to form Cendant in 1997 which sold its consumer software operations – Sierra On-line which included Blizzard – to the French publisher Havas in 1998 after an accounting scandal. The same year (1998) Vivendi purchased Havas and currently Blizzard is part of Vivendi Games group of Vivendi
In 2005 Blizzard acquired Swingin’ Ape Studios which was developing StarCraft: Ghost – which was later on postponed indefinitely – and later on re-named Blizzard Console to focus on next generation consoles.
145 Sierra Entertainment Sierra Entertainment was founded in 1979 by Ken Williams as On-Line Systems and was later changed to Sierra On-Line. The company started by producing video games for the Apple II and produced many popular and long running series of adventure games. The company is now a subsidiary of Vivendi Games (a subsidiary of Vivendi SA)
Take-Two Interactive Established in 1993 and based in New York City, Take Two is an American developer, publisher and distributor of computer and video games. Its subsidiary Rockstar Games created the Grand Theft Auto series.
Take-Two acquired sterling independent developer Irrational Games in January as a result of a relationship the two companies formed around Irrational’s upcoming release Bioshock .
Nintendo Based in Kyoto, Japan, Nintendo was established in 1889 by Fusajiro Yamauchi to produce handmade hanafuda cards. The company in the 1970’s started manufacturing video games and consoles.
Microsoft Game Studios A wholly owned subsidiary of Microsoft Corporation which develops and publishes video games for Windows-based PCs and the Xbox and Xbox 360 game consoles.
146 MGS publishes games for several Microsoft-owned first-party developers including Bungie Studios and Rare Ltd in addition to publishing games created by third-party developers such as Bioware and Bizarre Creations.
Acquisitions 2001: acquired Bungie Studios which gave it full control of the studio and shifted the development of Bungie’s game Halo: Combat Evolved to the Xbox platform. 2002: acquired Rare from Nintendo and the Stamper brothers in what is believed to be one of the most expensive purchases of a video game development company at a cost of around $ 375 million. 2006: acquired Lionhead Studios in April and Massive Inc in May.
THQ Founded in 1989 and based in Agoura Hills California, THQ is a global developer and publisher of video games for consoles, handheld game systems and PCs. The company began building its internal product development capabilities starting 2001 with the acquisition of Volition Inc and since then grown to 16 studios across the world. Its distribution network include offics in North America, Europe and Asia-Pacific.
On May 10, 2007, THQ reported its highest annual sales revenue and net profits number for the year ended March 31, 2007. Revenues exceeded $ 1 billion.
UBISOFT Entertainment Established in 1986 and is an international computer and video game publisher and developer. The company has facilities in over 20 countries including; France (Headquarter), Canada, Spain, China, USA, Germany, Bulgaria, Romania, Morroco and Italy.
147
Founded by the Guillemot brothers in 1986 soon made deals with EA and Sierra to distribute their games in France. In December 2004, EA purchased 19.9% stake in Ubisoft.
Konami Corporation Founded in 1969 and is a leading developer and publisher of numerous toys, trading cards, anime, tokusatsu, slot machines and video games. It was founded initially as a jukebox rental and repair business in Osaka, Japan.
In addition, in 2006, Konami started producing movies based on their popular franchises. It had already released Silent Hill and announced the production of Metal Gear Solid.
Sega Corporation A Japanese Multinational video game software and hardware developer and a former home computer and console manufacturer founded in 1940. The company had success in both arcade and home console market but abandoned the console business in 2001 and evolved into a third-party publisher of games.
In 2003, CSK decided to sell its shares in SEGA, discussions included Sammy, EA, Bandai, Namco and Microsoft. In August 2003 Sammy bought the 22% outstanding shares from CSK. During 2004 Sammy bought a controlling share in SEGA creating one of the biggest games companies in the world. In March 2005, SEGA acquired the developer Creative Assembly (creators of Medieval: Total War and Rome: Total War)
148 Bandai Namco A Japanese holding company for Namco Bandai Group formed from the merger of Namco and Bandai which have interests in toys, video and arcade games and amusement facilities.
The new entity was formed on September 29, 2005. Officially Bandai purchased Namco but in reality both have equal power in group decisions. On March 31, 2006 Namco merged with Bandai’s video games operations and was named as Namco Bandai Games Inc. (NBGI).
Sony Computer Entertainment A full subsidiary of Sony Corporation established on November 16, 1993. It handles the research and development, production and sale of hardware and software for the Sony PlayStation handheld and video game consoles in addition to being the developer and publisher of video games for their own systems.
EverQuest A 3D fantasy MMORPG released on March16, 1999. the sequal EverQuest II was released in 2004. It earned GameSpot’s Game of the Year Award in 1999. There are 13 expansions for the game between March 2000 and February 2007 in addition to an anticipated one in November 2007.
Square Enix A video game company best known for itsw console RPG franchises (Final Fantasy, Dragon Quest). It was formed through a merger between Square Co. and Enix Corporation in 2003.
149 Acquisitions 1- 2004 acquired UIEvolution Inc. 2- 2005 acquired Taito Corp.
Eidos A publisher of video and computer games . it is part of the Eidos Group of Companies a sunbsidiary of Sci Entertainment Group PLC.
Lucas Arts A US based video game developer and publisher founded in 1982 famous for its line of graphic adventure games though currently is mainly publishing Star Wars franchise games.
In the late 1980s and early 1990s, the company developed a series of military simulation games (PHM Pegasus and Strike Fleet in 1987) that were published by EA.
In 2003, the company entered into the MMO industry with its MMORPG game Star Wars Galaxies with a successful launch. It had launched expansions for the game but it is considered not yet up to the expected standards with many unresolved player demands. It is expected to be more of a complete product during 2007.
Capcom Founded in 1979, a Japanese international developer and publisher of video games.
150 Buena Vista Games Formed in 1994 as Disney Interactive formerly known as Buena Vista Games the Game publishing division of Disney. Buena Vista’s monetary foundation is admittedly rooted in a wide variety of games based on Disney-owned intellectual property, but the company has made some moves toward original material and other licenses.
Atari A developer, publisher and distributor of games for all major video games consoles and personal computers. Its ownership turned hands several times in its history since inception in 1972 as Atari Inc. till Infograms acquired the brand from Hasbro in 1999.
Midway Games An American video game publisher founded in 1988. Midway legacy titles include Mortal Combat, NBA Jam and Ms. Pac-Man.
Acclaim Games A private online video game company that offers free MMORPG. Its primary focus is to bring in online games developed in Asia to North America and Europe. In addition, it gives the opportunity to its registered members to submit their own created games. As it offers free MMORPG on its site, it relies over advertising and items sale for revenue.
151 Codemasters Codemaster was formed in 1985 by Richard and David Darling as a video game developer and publisher. It is based in Warwickshire, United Kingdom and has operations in North America, Germany, France, Spain and Benelux. It was acquired by Balderton Capital in June 2007.
4.4. China and Korea Publisher
NCSoft A South Korean online computer game company founded in 1997. It produced the MMORPG Lineage which was announced to be one of the largest commercial MMORPG communities in the world in 2005 after releasing Lineage II: The Chaotic Chronicle.
It was announced at E3 2007 that Ncsoft is now an exclusive first party Sony developers and would develop games exclusively for the PlayStation Network.
On April 27, 2007, Seoul Metropolitan Police announced that seven former employees of NCSoft are suspects of selling the Lineage III source code to a major Japanese game company. According to NCSoft, the potential damage cost may exceed $ 1 billion.
Shanda Interactive Entertainment (www.snda.com ) (Nasdaq: SNDA) Shanda Interactive Entertainment Limited is formed in December 1999 and based in Shanghai, China. Shanda operates one of the industry’s most diverse portfolios of online games and interactive entertainment, including some of the most popular massively multi-player online role playing games, or MMORPGs, and casual online games in China as well as online chess and board games and
152 network PC games. Shanda is also a provider of cartoon, literary and music content.
The9 (www.corp.the9.com) (Nasdaq: NCTY) The9 Limited is formed in 1999 and is based in Shanghai, China. The9's business is primarily focused on operating and developing MMORPGs for the Chinese online game players market. The9 directly or through affiliates operates licensed MMORPGs from other countries.
NetEase (http://corp.163.com/eng/home.shtml) (Nasdaq: NTES) NetEase operates a leading interactive online and wireless community in China and is a major provider of Chinese language content and services through online games, wireless value-added services and Internet portal businesses. They generate revenues from fees charged to users of online games and wireless value-added and other fee-based premium services, as well as from selling online advertisements on the NetEase Web sites.
Kingsoft (http://en.kinsoft.com) Kingsoft, founded in 1989, is an innovative technology company focused on software research and entertainment. It produces word processing and antivirus software. The entertainment division produces MMO games.
153 Tencent (www.tencent.com) Founded in Shenzhen in November, 1998, Tencent is recognized as the operator of the leading Internet community in China. Tencent's instant messaging service platform, "QQ," was formally launched in Feb 1999 and is currently the number one IM service in China. Their online entertainment division produces online games.
Perfect World (http://www.wanmei.com/en/index.htm) Beijing Perfect World Co., Ltd was founded in 2004 and invested by Mr. Chi Yufeng, the president of Human Software Corporation, which is a leading educational software company in China.
Nineyou (www.9you.com) Nineyou (Shanghai Everstar Online Entertainment Co .Ltd.) is the world’s biggest music online game operator, China’s biggest casual game operator, which is the first to integrate online game services, fashion, digital entertainment contents, a variety of chatting and community services equipped with Avatar System, wireless value-added services and other premiere services to the Chinese language internet users all over the world. The major investors of Nineyou are several leading international venture capital funds, including the Carlyle Group, which is the world’s largest private fund investment group, China Merchant Fortune Ventures, and Dragon Groove Inc. who has the background as international strategic investor.
154 Optisp (www.optisp.com/english/index.html) Guangzhou Optisp, founded in February 1999, is a new hi-tech enterprise integrating research and development, operation and distribution of entertainment software and to develop and operate games. Optisp deals with five main business domains including online game operation, wireless business operation, software R&D and internet game centers
Gravity (www.gravity.co.kr/en/about/eng_company.asp) (Nasdaq: GRVY)
Gravity is founded in April 2000 with the growth of Korean online game industry. Besides developing and publishing, Gravity is also providing various services such as animation and character merchandising based on higher value-added game contents.
Nexon Corporation (http://company.nexon.com/english/html/main.asp) Established in 1994, NEXON developed the world's first graphic MMORPG, 'The Kingdom of the Winds'. NEXON, facilitates every process of game publishing, from funding to commercial launching.
NHN Corporation (http://www.nhncorp.com/nhn200512/en/main/index.html) NHN Corporation is Korea's premier internet company operating search portal Naver (www.naver.com) and game portal Hangame (www.hangame.com) NHN has emerged as the largest company in the tech-heavy KOSDAQ market in terms of market capitalization.
155 YNK Korea (http://www.ynkkorea.com/) YNK Korea Inc. launched its game marketing and character licensing business in 1998. Its subsidiary YNK Games develops and publishes MMO games.
Wemade (www.wemade.com/eng/wemade/01.asp) Wemade Entertainment Co., Ltd is an online games developer and service provider, based in Seoul, South Korea. Founded on February 10, 2000, Wemade has since developed several online games, the two most successful being the MMORPGs The Legend of Mir 2 , and its sequel The Legend of Mir 3 .
Webzen (www.webzen.com) (NASDAQ: WZEN) A leading developer for 3D MMOGs in Korea.
Publisher Overview
Table 4.2 shows the overview of publishers with respect to their base of operations, notable games and studios as well as any MMOG games published.
156 Table 4.2: Publishers’ summary of Published Games Name Base Notable Games MMOG Notable Studios Electronic Arts Redwood, FIFA series Ultima Online Criterion (UK) California Need for speed series The Sims Online Digital Illusions (UK, US) Command & Conquer EA Black Box (Canada0 series EA Canada SimCity series EA China The Sims series EA Los Angeles Battlefield series EA Mobile Medal of Honour EA Montreal series EA Mythic (US) EA Japan EA Redwood Shores (US) EA Singapore EA UK Maxis EA Phenomic EA Triburon Activision Santa Pitfall Beenox (Canada) Monica, Quake series Infinity Ward (US) California Battlezone Luxoflux (US) Civilisation: Call to Neversoft (US) Power Raven Software (US) Tony Hawk’s Pro RedOctane (US) Skater Shaba (US) Star Trek series Toys for Bob (US) Star Wars Jedi Knight: Treyarch (US) Jedi Academy Vicarius Visions (US) Call of Duty Z-Axis (US) Doom 3 Rome: Total War
157 Name Base Notable Games MMOG Notable Studios Vivendi Games Los Angeles, California
- Blizzard Irvine, Lord of the Rings World of Warcraft Entertainment California Warcraft series Diablo 1 & 2 Starcraft High Moon Studios (US) - Sierra Los King’s Quest series Massive Entertainment Entertainment Angeles, Leisure Suit Larry (Sweden) California series Radical Entertainment (Canada) - Sierra Online Los Empire Earth series 3D Ultra Minigol Adventures Swordfish Studios (UK) Angeles, Homeworld (PC/Xbox Live) California Battlestar Galactica (PC/Xbox Live) Swichball (PC/Xbox Live) Take-Two New York Sid Meier’s series 2K Games (which include Interactive Grand Theft Auto Firaxis Games, Irrational series Games, Take-Two Licensing, System Shock 2 Venom Games) Tribes: Vengeance 2K Sports (which include Swat 4 Visual Concepts, Kush Manhunt 1 & 2 Games, PAM Development) Max Payne Global Star Software (which include Gathering, Gotham Games, Talonsoft) Jack of All Games Rockstar Games
158 Name Base Notable Games MMOG Notable Studios Nintendo Kyoto, Donkey Kong series Nintendo Entertainment Japan Mario Bros series Analysis and Development Legend of Zelda series NDCUBE Pokemon series Microsoft Game US Age of Empire series ACES Game Studio Studios Age of Mythology Bungie Halo 1 & 2 Carbonated Games Gears of War Ensemble FASA Interactive Hired Gun Lionhead Rare Turn 10 Wingnut Interactive Massive Inc. THQ California Star Wars series Blue Tongue Entertainment WWE series Concrete Games Warhammer 40k Crank Pants Games S.T.A.L.K.E.R Heavy Iron Studios Company of Heroes: Helixe Games Opposing Fronts Incinerator Studios Juice Games Kaos Studios Locomotive Games Mass Media Paradigm Entertainment Rainbow Studios Relic Entertainment THQ Australia Vigil Games and Volition
159 Name Base Notable Games MMOG Notable Studios UBISOFT France Rainbow Six series Shadowbane Annecy Entertainment Ghost Recon series Everquest (Europe & Japan) Blue Byte Splinter Cell series Red Storm Rayman Reflections Myst Wolfpack Far Cry Konami Osaka, Metal Gear series Blue Label Interactive (US) Japan Contra series Hudson Soft (US, Japan) Silent Hill series Konami Computer Winning Eleven series Entertainment (Japan) Konami Sofware (China)
Sega Japan Sonic series Creative Assembly Corporation Virtua Fighter series Racing Studio Empire: Total War Secret Level Football Manager Sega Shanghai series Sega Studios Sports Interactive Bandai Namco Japan Pac-Man series Banpresoft Tekken series Namco Networks Time Crisis series Japan Bec Yokohama Sony Computer Japan Gran Turismo series Everquest 1 & 2 Contrail Entertainment God of War series Guerrilla Games MotorStorm Incognito Entertainment Wild Arms series Insomniac Polyphony Digital Naughty Dog SN System Zener Works
160 Name Base Notable Games MMOG Notable Studios Square Enix Japan Final Fantasy series Final Fantasy XI Square Enix (China, Japan) Dragon Quest series UIEvolution Taito Corp. Capcom Japan Street Fighter series Capcom Interactive Final Fight series Cosmic Infinity Resident Evil series Flagship Team 1 & 2 (internal) NCSoft Korea Lineage 1 & 2 (3 under Arena Net development) Guild War series City of Heroes City of Villains Auto Assault Dungeon Runners Aion Tabula Rasa Eidos UK Age of Conan Beautiful Game Studios Blood Omen Crystal Dynamics Commandos series IO Interactive Fear Effect Pivotal Games Final Fantasy VII & VIII Tomb Raider series LucasArts US Star Wars series Star Wars: Galaxies Grim Fandago Full Throttle Indiana Jones series LEGO series Buena Vista US Kingdom Hearts II Avalanche Software Games Chronicles of Narnia Propaganda Games
161 Name Base Notable Games MMOG Notable Studios Atari US Neverwinter Nights Atari Melbourne series Eden Studios Driver series Humongous Inc. Unreal Tournament Shiny Entertainment 2003/04 Midway Games US Mortal Combat series Pitbull Syndicate NBA Jam series Surreal Software Strike Force Midway Austin, Chicago, Los Angeles, San Diego Acclaim Games US BOTS 9Dragons 2Moons Codemasters UK Colin Mcrae series TOCA Racing series Brian Lara series Shanda China The World of Legend Interactive The Sign Entertainment The Age Magical Land Shanda Rich Man
Licenses: Ragnarok Online Dungeons & Dragons Online Legend of Mir 2 MapleStory
162 Name Base Notable Games MMOG Notable Studios The9 China Joyful Journey West The9 City Licenses: MU World of Warcraft Granado Espada SUN Guild Wars Ragnarok Online 2
NetEase China Westward Journey Online 2 Fantasy Westward Journey Tian Xia
Kingsoft China JX 1& 2 Online The First Myth CQ Online
Tencent China QQ Game QQ Pet QQ Fantasy
Perfect World China Legend of Martial Arts Perfect World Online Zhu Xian Online
Nineyou China Super Dancer Online Licenses: Audition MMO Dancing O2Jam
163 Name Base Notable Games MMOG Notable Studios Optisp China S.O.S Online Shavia Online Shine Online License: Legend of Mir 3 EVE Online Come on Baby Online Gravity Korea Ragnarok Online 1& 2 R.O.S.E Online Requiem Online
Webzen Korea SUN Huxley All Points Bulletin Parfait Station Nexon Korea MapleStory Kart Rider The Kingdom of Winds Mabinogi NHN Games Korea Approximately 130 games on NHN web portal, Hangame YNK Korea Korea Rohan Seal Online Wemade Korea Legend of Mir 2 & 3 Kailas N.E.D Creamph
164
4.5. MMOG Publishers Industry Future
The estimates for the global online gaming market for the year 2006 was estimated to be around $4.5 billion which is expected to grow to exceed $13 billion by 2012 (DFC Intelligence Online Game Market Forecasts 2007).
Although currently the bulk amount of the revenue is generated from subscriptions, it is forecasted that consumers’ would increase their spending over digital distribution and virtual items purchases to become around 40% of 2012’s projected revenue.
Figure 4.8: DFC Intelligence Total Worldwide Online Game Revenue Projection 2006-2012
Source – DFC Intelligence Online Game Market Forecasts 2007
As shown in figures 4.9 to 4.11 below, the projected numbers of online gamers in the three major regions (i.e. Europe, Asia and North America) are expected to grow significantly over the next 5 years.
165 Figure 4.9: DFC Intelligence Europe Total Online Gamers Forecast 2001-2011
Source: DFC Intelligence Online Games Report 2006
Figure 4.10: DFC Intelligence Asia Total Online Gamers Forecast 2001-2011
Source: DFC Intelligence Online Games Report 2006
166
Figure 4.11: DFC Intelligence North America Total Online Gamers Forecast 2001-2011
Source: DFC Intelligence Online Games Report 2006
Asia which includes China and South Korea is currently in the lead in both gamers’ numbers and revenue
4.6. Summary The MMOG market is attracting attention from game publishers and developers due to the high revenue opportunities. Fuelling the growth of the market is the steady increase of the number of online gamers as well the increase in penetration of broadband connections in both Asian and Western regions.
167 Figure 4.12: DFC Intelligence Worldwide Broadband Household Penetration Forecast 2001-2011
Source: DFC Intelligence Online Games Report 2006
168 The number and percentage of casual gamers dominate the online gamers’ preferences profiles. It is forecasted that there will be a steady increase in the overall number of the online gamers at all levels of gaming preferences (Casual, Moderate and Hardcore).
Figure 4.13: DFC Intelligence Worldwide PC Online Gamers Preferences Forecast 2001-2011
Source: DFC Intelligence Online Games Report 2006
169
According the OECD report, the hardcore gamer segment which is 10% of the overall online gamers generate 70% of the online games revenue.
Figure 4.14: Revenue Generation Proportion in comparison with the Online Gamers preferences
Source: OECD Digital Broadband Content: The Online Computer and Video Game Industry Report’ May 2005
The highest revenue generator within the MMOG market is the MMO Fantasy Role Playing Games genre which is due mainly to players’ preferences of the genre, the genre’s suitability of being played as MMO and lack of interest by the publishers to create MMO for the other genres.
170
Figure 4.15: MMORPG Market share
Source: http://www.mmogchart.com
Developing a high-end large scale MMOG requires considerable effort in terms of game development time and technological knowledge in comparison with the traditional video games.
In addition, MMOGs need to be constantly updated and maintained in order to have new game contents and a stable gaming environment. Other critical issues that need to be taken into account include billing, hosting, customer support and management.
Mainly large well-established studios with significant human resources availability and funding can develop and maintain such games at a feasible scale.
There are also a large number of hobbyist and independent developers that use free or less expensive middleware and software to develop small-scale MMOGs and casual games.
171
These games are easily available and are relying on word of mouth to popularise which in turn can generate revenue mainly from either advertisement or digital distribution.
Accordingly, targeting an entry to the “high-key” games market is relatively difficult in comparison to the “low-key” casual small-scale segment of the MMOG publishing market.
Asian online game publishers such as Webzen and Ncsoft have been successful in their native regions as well as venturing into the western market.
Due to the successes of the Asian game publishers and developers, it might be feasible for western publishers to outsource the development of new MMOGs to the Asian game developers and the statement “China – Threat or Opportunity” must be studied carefully as there might be considerable profits (both financial and non-financial) to be gained.
Western video game publishers have also been noted for their many acquisitions of successful video game studios (e.g. EA acquiring Maxis, Vivendi acquiring Blizzard and Sierra and Infograms acquiring Atari).
Acquiring MMOG game developers by publishers could be a speedy way for the publishers to enter the online game market or to subdue the competition from third party MMOG developers/studios.
172 Chapter 5– Conclusion
Fig 5.1 MMOG Industry relationship
Supply MMO Middleware Game Idea MMO Game MMOG Middleware MMO Publisher Developer Supplier Make Game Develop MMO • •Story •Publish Middleware •Art Design •Market •Programming/ •Production Development •Distribution •Content Creation •Hosting Management
As a result of our work over this project, we gained an overall comprehension about the relationship between the three industries operating within this project’s research criteria (i.e. MMOG Publishing, MMOG Game Development and MMOG Middleware).
These industries are interlinked and any factor related to one affects them all.
Yet these effects are not of equal weight. Our understanding led us to believe that the factors of the publishing industry have the greatest effect on the macro level. For example, to understand where the middleware industry is going and its future growth, we need to understand and know the future forecasts for the Online Gaming market, in other words, the factors reflect downward from the MMOG publishing industry to the MMOG developing industry which them filters down to the middleware industry. The factors’ effect from the publishers to the middleware is stronger and clearer than the other way around.
173 Between them, the publishing industry has more weight in effecting the online gaming market.
We have noted a trend within the publishing industry of constant and periodic acquisitions of game developers and studios. This can be explained as either to control the competition from these studios, acquiring certain skills sets that are scarce in the market, to acquire the experience of the studios or to invest on the studios’ successes and established brands.
We believe that one of the most important factors in the online gaming market is the demographics of gamers as hardcore, moderate and casual gamers (split based on time and efforts put in playing). We have realised that the number and percentage of the casual gamers is the dominant sector, yet the hardcore gamers – although being the minority – actually are the highest revenue generators for the gaming companies as they are willing to spend funds over subscription fees for long periods of time in addition to there willingness of purchasing virtual items related to the game they are playing.
This sector of the gamers is the most important to be targeted and attracted by the publishers upon the launch of new games through innovation in the game concepts, theme, quality and genre (i.e. hybrid genres).
The future of MMO games – according to the forecasts – looks good and potential growth is expected which is good news for the MMOG publishers, this means that the MMOG developers would have a slice of the pie (although not as big as the publishers) and the same applies to the middleware developers through licensing their products (whether developing or commercial licensing).
This is particularly good for Monumental Games as it leads to growth in both its businesses as a game developer and a middleware provider. It has already target the sports genre – diversifying from the popular MMORPG genre – which
174 has a growth potential as gamers increasingly demand for the sport, sci-fi and other genres which are not yet fully exploited by the industry.
The company still faces few challenges such as the availability of staff that possess certain important skills sets, legislations and limitations over controversial and addictive games, the number of competitors in the market and a potential for the industry to face the challenges accompanied by the fast growth it is facing which are challenges applicable to the industry as a whole.
There is also a set of opportunities the company should target and potentially benefit from – in financial, operational and growing market share aspects – such as the possibility of targeting non MMOG applications of the company’s current and future updates of the existing middleware in addition to a potential of creating a co-opetition state between the middleware companies through leading an initiative to bring together the competitors in this market to co-operate for the benefit of the whole.
The company’s operation in two of the three inter-related industries is essential at this point until it has enough experience, exposure and time to establish itself and its name in the market. Entering the publishing industry – in its traditional sense – at the current time might be pre-mature for the company due to the existence of the well established publishers that mainly control the market through their brands. It might be easier and more beneficial for the company – is it wishes to enter the publishing industry – to enter it first through the digital distribution sector and/or through partnerships with well established publishers for a period of a time sufficient to establish the company’s name in the industry.
The operation of the company in the middleware industry is faced by a challenge of the experience of the other competitors in the online gaming industry. Although the industry itself is relatively young, there are companies that have been
175 operating in it from the early starts of the online gaming market (e.g. BigWorld and Simutronics).
This experience is accompanied with the established brands and connections to the different players in the market notably the media firms that have worked close with some middleware providers (e.g. Simutronics and Perpetual Entertainment’s projects with Viacom, Multiverse with 20 th Century Fox).
The middleware companies are not restricting themselves to the core business of providing middleware to MMOG developers. They are offering Value Adding services to their customers that are cash flow generating such as consulting services and staff outsourcing to help customers in their projects in addition to non-cash generating services such as providing the ability to customers and their final users to give feedback over the middleware products through forums. These forums are not intended for publicity or customers’ relations management only, they are also important for the companies to understand what the customers and end users think of the product, what the expectations are and what they require in the future products and updates.
With a young, fast growing and changing industry, the middleware developers need to keep up with the constant changes whether to meet the constantly changes in products’ and services’ demands of the industry or to predict the future trends and uses of the current products.
It was noted that the middleware developers have been receiving constant – and in some cases significant – inflow of funds from investors. Yet the information of the purposes of these funding activities are not available but it can be speculated their use in new projects whether MMOG development, middleware update or middleware changes for non-MMOG applications.
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188 Appendix
Middleware Company Questionnaire
1) What are the products/services provided by your company?
Kaneva: Social networking, Virtual World, Online MMO Dance Game
Nice Tech: We are a full service (Design, Development, Management) of Online Games (MMOs) Virtual Worlds.
Emergent: Gamebryo 3D game engine
2) What licensing options/types do you offer to your customers for using/purchasing your middleware/services?
Kaneva: We offer our platform to developers. See
Nice Tech: Due to the unique nature of our technology, we do not/are set up to license.
Emergent: per title
3) To which type/industries do you provide your products/services?
Kaneva: Any industry interested in engaging consumers. We have agreements with broadcasters, consumer packaged goods etc.
Nice Tech: There are three main target markets Games, Defense & Television. However, given the rapidly evolving nature of the Virtual World space, it is likely that this will widen, i.e. health
Emergent: Game companies, some visual simulation/training
189 4) What is the selling price of your products/services?
Kaneva: Free to get an account. More exclusive content and credits start at $9.99.
Nice Tech: Each product is costed on the basis of size and bespoke requirements.
Emergent: $150k+ USD per title per platform
5) What are the preferred payment methods for your products/services?
Kaneva: credit card or paypal
Nice Tech: Work-for-Hire currently encompassing milestone payments.
Emergent: wire transfer
6) What is the average cost of developing your products and/or updating existing products?
Kaneva:
Nice Tech: See above.
Emergent: This is difficult to quantify simply
190 7) What support do you provide to your customers?
Kaneva: CS Lead on call .24 hrs / 7 days via forums, email
Nice Tech: We manage all hosting and customer service requirements
Emergent: email, phone, and forum
8) What is the average development time of your products (in years)?
Kaneva: Less than 1 year
Nice Tech: 12-18 months. Our technology significantly reduces development times below that of industry averages.
Emergent: We are constantly upgrading the product and generally provide 2 new releases per year.
9) What is the average support period preferred by your customers?
Kaneva: Now. ASAP.
Nice Tech: Our first World will launch Q1 next year.
Emergent: Our customers pay for support on an annual basis
10) What is the average development time of MMO games using your product?
Kaneva:
Nice Tech: 18-24 months for a full fledged MMO.
Emergent: 2+ years
191 11) Where do you see your company in 5-10 years?
Kaneva: Leading the mass market online virtual world market.
Nice Tech: Difficult to say given that there are a number of related factors and the nature of the market.
Emergent : 5-10 years is a long time in this business and difficult to predict. That being said, our current product has been on the market since 1998, our company was originally founded in 1983, so I see continual growth and evolution.
12) Where do you see your product in 5-10 years (technological development)?
Kaneva:
Nice Tech:
Emergent:
13) Are there plans to penetrate new markets and industries with your current products? If yes, which?
Kaneva: No
Nice Tech: See answer 3
Emergent: None those are radically different than our current markets.
14) Do you have current technological breakthroughs under development? If so, what impact would it have on the industry and market?
Kaneva: Yes. Significant.
Nice Tech: Alice Server is a breakthrough technology that adopts a "bottom up" approach to development via the use of "agents". We believe it will - and is - shorten development times, cost and change the outcomes in terms of game play
Emergent: We believe our new products and services will have significant impact on the games market. They are unannounced and so we would prefer not
192 to talk about them.
15) What are the technical highlights of your Middleware product?
Kaneva:
Nice Tech: Agent based software encompassing true AI
Emergent: Our highlights are laid out at http//www.emergent.net/index.php/homepage/products-and- services/gamebryo/gamebryo-tools and http//www.emergent.net/index.php/homepage/products-and- services/gamebryo/gamebryo-engine
16) How do you promote your products?
Kaneva: Grassroots marketing, Word of mouth, Internet buzz, Search engine marketing
Nice Tech: Direct sale to high ticket customers supported by web, PR and Events
Emergent: Our website, tradeshows, press releases
17) What are the sources of finance for your products?
Kaneva: private investors
Nice Tech: Third-party funding.
Emergent: Self funded with revenue from Gamebryo as well as venture funding
193 18) Approximate cost and time savings your product provides for the MMO games publishers and/or developers?
Kaneva:
Nice Tech: Varies by product and customer requirement. AliceServer is inherently flexible in design so attaching a definitive figure is not possible
Emergent: We have had customers say they have saved 6 months in development time. We save them several programmer-years of effort.
194