Online gaming business to get more sophisticated in 2005
Chicago (IL) - 2004 was a key year for the gaming industry to recognize that there enormous growth left in online gaming and set the stages to go more aggressively after more players in the coming months. While gaming experience promises to become even more dazzling, the industry learns how to convince players to shell out extra cash.
If you are not among the millions playing online yet, then you are missing a trend. Sony Entertainment says it has 750,000 registered online players, Valve and Blizzard each have more than 200,000 users playing Half-Life 2 and World of Warcraft simultaneously online. Microsoft also is in big business and reports more than one million registered users for its Xbox Live service.
The trend of online gaming did not develop overnight, but has been in a steady path of growth that analysts trace back to the early 90s. "For more than a decade we notice a continuous growth in gamers and revenues," says David Cole, principal analyst at market research firm DFC Intelligence. "It is like a snowball running down a hill. Its getting larger. But initially it was slower than we had expected."
According to Cole, 1997 was predicted to be the big year for online gaming. However, the industry had to wait until 1999 and the arrival of Sony's EverQuest to get "proof that users are willing to pay substantial sums for online games," he said. 2004 finally was a key year for the industry with a series of blockbuster games such as Halo 2, Half-Life 2 and World of Warcraft - all of them with online playing capabilities. The success of 2004 confirmed strategies of major industry players that their business has to go far beyond the revenues made from traditional box purchases.
"One of the biggest surprises to some is how much room there still is for growth in online gaming," said Dean Lester, general manager of Microsoft's Windows Graphics and Gaming Technologies unit. "Traditional gamers are signing up in massive numbers for the fantasy settings of EverQuest 2 and World of Warcraft, but there's also a vast growth opportunity for creative content to bring new players to the genre. A good example of this is the success of games such as City of Heroes."
Cole believes the gaming industry is on a path to a significant change of business models. "The challenge is to see that a game is not just a product, but a service. Everyone out there is still learning to understand the consumer's needs." Schelley Olhava, gaming analyst with IDC agrees but stressed that different firms are in different stages of taking advantage of this idea: "I think that some publishers are very savvy about their respective online strategies and how the market has evolved and continues to evolve, while others have been a bit behind the curve." Both Cole and Olhava pointed out that especially Electronic Arts appears to be falling behind in online gaming. "EA should be concerned. They've always struggled with online, and really, their most successful forays into online, Ultima Online and Pogo.com, have resulted from acquisitions," Olhava said.
Basic services of successful online game service will have to take advantage of what developers call "online socialization" - the way users interact with each other. "Humans are inherently less predictable than any AI. Given this, you never know what your opponents might try in a game, and that makes [online gaming] more unique," said Doug Lombardi, marketing director for Valve. "In terms of commraderie, there's a very social aspect to online gaming - who you play with/against and which servers you frequent."
One of advanced services in online gaming could be bringing game consoles and PCs together into one service. Microsoft has been talking about this idea for about a year now and said that its XNA development platform could bring multiple platforms together. "The question [of bringing platforms together] is more than just technical. There are also different game play dynamics and unique advantages for players on each platform. We think it's a wonderful idea," said Microsoft's Lester.
Room for improvement in online gaming strategies also is still left in alliances between developers, content providers as well as broadband companies. While every game developer views a broadband connection as a key element for online gaming there is virtually no interaction with cable and DSL providers. Cole misses especially the interest from broadband firms which could utilize the trend to attract new customers: "gaming clearly enables providers to distinguish themselves from the competition. A bundling of Internet access with gaming makes lots of sense. What we are seeing right now are more or less baby steps forward."
Since game developers show clear interest in improving Internet connections for their service, a broadband-gaming bundle however may be just a matter of time: "Anyone can play baseball. But if you have a nice glove, nice shoes, and a shiny new bat, chances are you'll enjoy the game a bit more than the less fortunate person playing with a worn out glove, dull cleats, and a broken bat," Lombardi said. In the end, plain numbers may be enough to draw the attention of broadband providers. Schelley Olhava expects the online gaming market to grow to more than $2 billion in revenues by 2008, up from about $656 million in 2004.