Massively Multiplayer Online Games Industry: a Review and Comparison
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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. 1 - 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.